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Daily Newsletter, Sunday, 05/28/2000

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The Option Investor Newsletter Sunday 5-28-2000
Copyright 2000, All rights reserved. 1 of 5
Redistribution in any form strictly prohibited.
Posted online for subscribers at http://www.OptionInvestor.com
Entire newsletter best viewed in COURIER 10 font for alignment
******************************************************************
MARKET STATS FOR LAST WEEK AND PRIOR WEEKS
******************************************************************
WE 5-26 WE 5-19 WE 5-12 WE 5-5
DOW 10299.24 -327.61 10626.85 + 17.41 10609.37 + 31.51 -156.05
Nasdaq 3205.11 -185.29 3390.40 -138.65 3529.07 -287.75 - 43.84
S&P-100 736.08 - 16.87 752.95 - 8.72 761.67 - 8.12 - 11.63
S&P-500 1378.02 - 28.93 1406.95 - 14.01 1420.96 - 11.67 - 19.80
RUT 457.37 - 22.33 479.70 - 11.24 490.94 - 21.90 + 6.59
TRAN 2687.55 - 54.45 2742.00 -132.02 2874.02 - 2.09 + 26.10
VIX 27.49 - 1.28 28.77 - 1.23 29.95 - 0.44 + 1.64
Put/Call .65 .89 .53 .53
******************************************************************
What if they opened for trading and nobody came?
That was the case on Friday. The Dow and Nasdaq both posted the
lowest volume for the year and both indexes ended in almost a
draw. The Nasdaq and the Dow traded on both sides of positive
several times during the day and the outcome was in doubt until
several minutes after the closing bell. With the Nasdaq posting
only a -.24 loss it would appear on the surface that nothing
happened. The Dow, although slightly more negative at -24.68,
was also a yawner.
Was it as sleepy as it appeared? Not in my mind. The Nasdaq had
a really good chance to retest the lows from Wednesday of nearly
3000 but could only muster a drop to 3150. The Dow tried to mount
a rally and failed closing below 10300, only 41 points off the
low of the day, and the lowest point since April 17th. Not awe
inspiring for me. The Nasdaq is looking like it is trying to
find a bottom here but the Dow looks like it has other ideas.
There was good news on the economic front on Friday. The April
Durable Goods Orders dropped a whopping -6.4% when they were
expected to increase +.5%. This was the largest drop in over
eight years. Durable goods are products expected to last for
more than three years and represent a large indicator for
economy watchers. If orders are dropping then sales are slowing.
The ripple down may be starting as a result of the interest
rate increases. The other major release was the Personal Income
and Spending report. Income increased only +.7% and spending
only +.4% which was inline with estimates. The personal
spending increase was the smallest since July of 1999.
Is the economy really slowing? We really hope so because that
is the quickest way to get Greenspan off everybody's mind. Today
there were other indications of a slowing economy as well.
Office Depot (ODP) warned that May sales were slowing and would
impact earnings. ODP set a new 52-week low. Add this to the
CostCo warning of the same thing earlier in the week and you
could build a case for a slowing business cycle. Fewer paper
clips and staples sold point to a business slowdown? You bet!
Could this be a new leading indicator for the Fed. Flush the
briefcase indicator on CNBC we now have a new standard. If we
can get all the secretaries in the country to count their paper
clips once a month and email their answer to the Fed (complete
with an email virus please) then the Fed would know immediately
if their interest policy was working.
Other leading indicators this week included wood and paper
stocks that were suffering from reduced orders as well as
auto stocks. Sales of new cars reportedly are slowing in May
and GM and Ford stock is suffering as a result. GM is a Dow
component.
Microsoft gapped open on the news that the government was
content to only recommend a two company breakup but bled
off again as news about the case continued to weigh on the
market. The judge, as though he needed another reason, took
another verbal shot at Microsoft late in the afternoon as he
took the case home alone for the weekend. A final ruling
may be out as soon as next week. Most watchers feel he has
already made up his mind months ago and is just going through
the motions. With every shot the judge takes at MSFT he
increases the possibility of the case being reversed on
appeal. Time will tell!
One of the major factors weighing on the markets is the cash
drain. Trimtabs.com reported today that a huge $7.2 billion
was withdrawn from equity funds in the week ended on Wednesday.
Has the investing public finally gotten fed up with the choppy
market and started believing the bears? I think it is worse
than that. At the Denver seminar Friday there were many investors
who were suffering from a big decline in their stock portfolios
and were very interested in repair techniques using options to
recover some of the lost money. If the more sophisticated OIN
investor is suffering from the bear market, and they are better
off than the rest of the investing public because they can
learn how to recover this money, then the majority of the
public is really hurting. Margin calls are continuing, taxes
still need to be paid and would be day traders are deciding
to be money market investors instead. Factor into this the
normal funds withdrawals for summer vacations and you have a
recipe for continued drops. Stir in an aggressive Fed and
serve with a bottle of Pepto.
Have I turned into a bear? Not hardly. The flip side to this
is the cash piled up on the sidelines. Mutual funds do not
win investors by stockpiling cash. The Nasdaq has now lost
40% from its March high. If that does not sound bad enough
to make a growth investor drool with anticipation then try
this fact. The Oct 1999 low was 2632 at the start of the big
Nasdaq rally. The Nasdaq high on March 10th was 5132 a cool
2500 point, almost 100% rally. Since March 10th the Nasdaq
has given back over 1900 of those 2500 points. In percentage
terms this is -77% loss. 77%!!! For everybody that missed
the 1999 rally this is the impossible second chance! Of
course many of these stocks will never see the glory days
of 1999 again but there will still be winners that will
replace JDSU, QCOM, CMGI, ICGE, CMRC from 1999 fame with new
winners in 2000. Take SDLI for instance. Outstanding and
with the China trade pact there will be others as well.
Back to the point. Many funds sold out long ago or at least
narrowed their positions significantly. These funds have cash
and they need to put it to work quick. Once the starters
gun fires, and it could be next week, the move could be
fierce.
Next week is typically a bullish week. According to the
Stock Traders Almanac the week of Memorial Day is a bullish
week and the best week in June. Also, June is a triple
witching month and the two weeks prior to expiration is
normally bullish. Thirdly, June in election years is normally
a good month. Add all of this to the -77% retracement of the
big gains from the last seven months and the prospects are
encouraging. Now that I have stated my case I am at the
mercy of the market, known as the great humiliator. So be it.
I looked at hundreds of charts this weekend and 95% of them
showed tentative bottoms and hopeful closing spikes on Friday.
Most gave back only 25% of their gains from Wednesday and
firmed as the day wore on. It is entirely possible this is
just another bear trap rally and we will retest 3000 again
next week. If we do I hope it is on Tuesday and I will be
waiting with cash in hand.
The Dow is the wildcard here. It closed near the low of the
day right under support at 10300 and looks like it could go
lower. If 10300 breaks then 10000 is not far away and we
could get there real quick. I do not see the Nasdaq moving
up if the Dow continues to drop. Everything I said in the
previous paragraph is still true at 3000 or 2900. The point
is, we are real close to a bottom in my humble opinion. We
should wait for confirmation before starting new positions.
The two determining factors next week are MSFT and the
non-farm payrolls. It is a given that the judge will order
MSFT broken into two companies. Still the actual order will
cause another ripple though the markets and another shock
to MSFT stock. Since MSFT is a Dow and Nasdaq component this
will cause trouble again. The non-farm payrolls could cause
more market stagnation as traders worry about a strong
showing causing the Fed to raise another +.50%. But I
think the distance between us and the Fed meeting, June 27th,
should blunt this apprehension to some extent.
Another weight on the Nasdaq is Dell. The once high flyer
is suffering and showing no signs of recovering anytime soon.
CSCO and INTC are improving and for stock traders CSCO is
a definite buying opportunity. This fact is not wasted on
fund managers either but most funds already have more CSCO
than they can own. If you look at DELL, CSCO, INTC, ORCL,
WCOM charts as a proxy for the Nasdaq you would be hard
pressed to be bullish yet. I don't think that these leaders
are where the profits will be but I think these leaders
will keep a cap on the Nasdaq. They will keep the index from
making big gains even though selected stocks on the Nasdaq
will be big winners.
I said Thursday I would be a buyer at 3000 on Friday. We
did not even come close. That is both good and bad news.
By not selling off again we still have that possibility
in our near future, especially if the Dow craters. However,
by failing to sell off on the lightest volume day of the
year it could indicate there are no sellers left. My ideal
scenario would be a morning sell off on Tuesday to something
close to 3000 and then a rally for the rest of the week.
The odds of that happening are less than 50/50 but I can
at least hope for it. If it does happen I will back up the
truck. If we get no dip and a positive bounce on Tuesday
morning I will probably only open a few positions until we
see if 3200 it is going to hold.
One position I want to open is YHOO but compared to everyone
else there was almost no life in YHOO at the close on Friday.
With earnings only five weeks away this is the prime time to
open the position. Is this just a gift? Are we just lucky
that YHOO calls are so cheap because of the market drop and
nobody has caught on to the timing yet? Or has the play
changed? Nothing stays the same forever and the YHOO earnings
run from the last eight quarters has been just like clockwork.
Has it been so choreographed that the play is dead because
everyone knows the ending? Who knows but at $112 I have to
take a shot and that is my play of the day!
Trade smart, don't buy too soon.
Jim Brown
Editor
Disclosure:
My current long positions: NOK, VOD, MSFT, VIGN
***************
SEMINAR RESULTS
***************
The first Regional Option Investor Seminar was held in
Denver this week and the results were outstanding. The
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***************************
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***************************
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***********
JIM'S PLAYS
***********
This article is a plea to do as I say not as I did. Since
two weeks have passed since the last update I don't know
where to start. Probably with the losers, the big losers!
I have become a long-term investor in VIGN. Not by choice!
After writing covered calls twice on VIGN in the last month
and being "lucky" enough to not be called out I still owned
3000 shares of VIGN last week when they announced their
buyout of OnDisplay. The resulting drop of -$15 was painful.
I did not sell for all the wrong reasons. First I did not
have a stop loss in place on the stock. Error 1. Always
have a stop loss no matter what. Second I did not sell on
Monday Afternoon because it looked like it was going to
bounce. Surely this great company would have a dead cat
bounce on Tuesday after a -30% drop. Error 2. Nothing
will ever "surely" happen. Thirdly, and the worst kind
of thinking, when it dropped back to $31 on Tuesday,
"It can't go any lower than here", "this was support on
Monday." Error 3. Stocks can always go lower and will
when you can least afford it. So now I am a long term
investor in VIGN. Down -$23, writing $3 covered calls it
will take a year to recover without help from VIGN.
I still have hopes that it will start moving back up on
any June rally but that may be a false sense of security.
Here is where the main problem lies with this type of
get even mentality. First, if I devote 25% of my focus
to recovering the money lost on VIGN I will miss larger
profits on other plays. It is a fact of life. You spend
more time and effort recovering lost money than making
new money. Unfortunately the human psyche, (male ego),
will not let us just close the play and admit defeat.
Even though I know I should, I perceive it as a challenge
to recover the lost money. So having admitted why I should
not try, here is how I am going to do it. (Remember, do
as I say not as I do) I also know that there are many
readers who have this problem as well and the exercise
will show you how to recover your own disasters.
VIGN $27, Sept-$22.50 call = $8.63, Sept-$45 call = $3.00
One solution would be to buy an equal number of Sept-$22
calls as shares of stock owned. In this case 30. Then
sell 60 of the Sept $45 calls for $3.00. By selling twice
as many calls as you buy you offset the cost of the purchase.
The 60 calls I sell are covered by the 3000 shares of stock
and the 30 $22 calls I purchased. My total cash outlay in
this example would be $2.63 x 30 contracts or $7890.
Considering I am down $69,000 already adding $7890 to
repair a position is an acceptable risk to me.
Here is how it would play out. If VIGN closes at $45
in September the 30 $22 calls would be worth $69,000.
Amazing how that works out! My cost in them is $7890
so my profit would be $61110. My 3000 shares of stock
would also have recovered all but $5 of its initial
value for only a $15,000 loss. Subtract that from $61110
and my total profit would be $46,110 for a busted play.
Ahaa yes, I hear you. But if the stock is going back
to $45 then why bother? Because it may not go all the
way back! In this scenario the stock only needs to get
to $38 to break even. If the stock closed at $38,
assuming my cost in VIGN was $50 I would lose $12 on
the stock portion. The $22.50 calls would be worth $15.50.
Subtracting the $2.63 cost leaves $12.87 or a profit of
$.87 on the entire transaction. (-$12 on the stock,
+15.50 on the calls, -2.63 cost = $.87)
Using this strategy VIGN would only need to move $11
to recover my $23 loss. Does that sound like a deal?
Anything over $38 is pure profit up to $45 where my
profits are capped by the calls I sold. Should I give
up any potential upside over $45 to recover my loss
with only a $9 move in the stock. You bet! The only
risk you have is that VIGN does not move up at all.
You should only use this strategy on a stock that you
are really comfortable with the long term prospects.
Now the problem is time. I am using capital to hold
the position with the worst case scenario being September.
Now I don't expect it to take that long and I can close
the play whenever VIGN reaches $38 which could be soon
if the Nasdaq rallies into the July earnings period.
The time frame is several months due to available
strikes and premiums required to make the deal work.
Now that I have explained how to recover the money I
am going to do something entirely different. I am going
to buy some June calls instead and hope for a $3-$5
bounce before executing the repair strategy. This would
lower the breakeven number and allow for more upside
if the stock rallies. I can use the proceeds from the
June calls to cover the $2.63 cost of the longer term
remedy.
*********
VIGN was not the only problem I had this week. I was
short the JUN-$200 puts on DNA with the stock at $130.
When the news broke that six people had died while
testing their lung cancer drug the stock got killed
dropping from $130 to $110 on Monday at the open and
down to a low of $85 from there. Since I was traveling
on Monday back from Las Vegas I did not realize the
problem until I logged in to my account on Tuesday
morning. OOPS! No stop losses, (do as I say, not as
I do), and I was now the proud owner of 2000 shares
of DNA at $200 - the $70.19 premium received. This
was a sizeable amount of money and I immediately sold
the stock for $105 and a loss of $50k. I watched it
for some time as it continued to drop expecting a dead
cat bounce but it did not occur. I deleted the symbol
from my current short term watch list and moved to
other things. When I came back to it two days later
I was sick at seeing the major bounce from $85 back
to over $100. Not that I would have held the stock
but I would have sold the puts again on the bounce
and ridden it back up.
**********
Just to add insult to injury I had been playing naked
puts on SDLI for the last two weeks. I had sold the
puts on May-10th when it was bouncing off $160. I set
my stops after the VIGN/DNA disasters at $170 on
Thursday morning. SDLI was $185 at the time. I was
away from my PC the rest of the day in meetings and
did not know about the downward spike until after the
close on Thursday. After the Thursday spike I was out
of all my positions and away from my PC on Friday
morning. When I logged in Friday afternoon I almost
died with SDLI up +$29. With the 20 contracts I was
playing that would have been a $58,000 profit. Aaaaaa!!
**********
To say this was a bad week would be an understatement.
The market was not the culprit. Of the dozen or so
plays I had going about half stopped out for losses
and the other half for profits. A lot of effort for
nothing! The two big losers, each news related, soured
my whole outlook and took my focus off the plan.
The problem here again, and I feel like a broken record,
is too many plays. I am the poster child for buying too
soon and buying too much. (do as I say not as I do)
I am in cash except for the VIGN stock and my leaps
on VOD, NOK, MSFT. I am planning to sell June calls
against the NOK, VOD leaps next week but I want to
make sure there are no surprises on the MSFT case
before selling calls against that position.
Next week I am going to limit my plays to a few naked
puts if we get a rebound and calls on YHOO. I want
to see the market actually move upward for more than a
day or two before getting aggressive again. Every time
I get burned I make the same promises to myself, but
I am sure you have never done that. I swear I will
never do XYZ again if only I can get out of this problem
alive. But, once the escape is made, the vow is forgotten
and it is back in the chase again. We are our own worst
enemies.
Please decide now what you are going to do if the worst
occurs in each of your positions next week. If it happens
don't cheat! Also, decide now what you will do if the
best happens to each position next week. Don't cheat.
Cheaters are doomed to follow me down the same instant
replay of previous nightmares on Wall Street.
Good Luck
Jim
***********
IN THE NEWS
***********
Devon Energy To Buy Santa Fe Snyder
By Matt Paolucci
Oklahoma City, Okla.-based Devon Energy Corp. said is has
agreed to purchase Santa Fe Snyder Corp. (SFS) for $2.3
billion in stock, not including roughly $1 billion in debt.
The deal would create the country's fourth largest independent
oil and gas producer.
Santa Fe Snyder shareholders will receive 0.22 Devon common
shares for each Santa Fe common share. Upon completion, SFS
shareholders will own roughly a third of the combined company,
while Devon shareholders will own the remaining two thirds.
The offer values Santa Fe Snyder shares at $12.91 a share,
based on Thursday's closing price of $11.00, representing a
17.3 percent premium to SFS's stock price.
Santa Fe Snyder is the product of a 1999 merger between Santa
Fe Energy Resources Inc. and Snyder Oil Corp.
The merger is expected to be accounted for as a pooling of
interests, and is estimated to close in the third quarter.
Both boards have approved the deal.
"This is a combination of two strong companies that are that
much stronger together," said J. Larry Nichols, Devon's
president and chief executive officer.
The transaction will create an international oil and gas
company with a combined value of approximately $9 billion,
with total proved reserves of more than 1 billion barrels of
oil equivalent.
The deal will be the biggest purchase to date for Devon, which
has expanded quickly through acquisition in recent years, in
hopes of becoming a true player in the oil industry.
James L. Payne, CEO of Santa Fe Snyder, gave his blessing to
the deal, saying, "Devon and Santa Fe are uniquely positioned
to create additional shareholder value. The combination will
be predominately North American but will also offer
significant international upside potential."
The new company will have a capital structure consisting of
approximately 126 million common shares outstanding, $150
million in preferred securities, and roughly $2.1 billion of
long-term debt and other liabilities.
The combination certainly seems practical. Devon said it
expects annual cost savings of $30 million to $35 million, and
is expected to be accretive to Devon's earnings in the first
full year after the deal closes.
About 75 percent of the combined company's reserves will be in
North America and equally split between oil and natural gas.
The company also would have substantial international
reserves, including Azerbaijan, Southeast Asia and South
America.
One drawback to the deal is that the companies have
substantial property overlap in core operating regions
including the Permian Basin, the Rocky Mountains and the Gulf
of Mexico.
The Devon/Santa Fe deal follows recent consolidation in the
oil exploration industry. Last month, Anadarko Petroleum Corp.
(APC) agreed to acquire Union Pacific Resources Group Inc.
(UPR) for $3.91 billion in stock.
Shares of Devon Energy were down $3.06 per share to $55.63, while
shares of Houston-based Santa Fe Snyder were higher by $0.81 to
$11.81 per share in Friday's session.
***************
ASK THE ANALYST
***************
There is no Ask the Analyst Article this weekend.
**************
MARKET POSTURE
**************
As of Market Close - Friday, May 26, 2000
Key Benchmarks
Broad Market Bearish/Bullish Last Posture/Since Alert
****************************************************************
DOW Industrials 10,000 11,400 10,299 Neutral 5.05
SPX S&P 500 1,400 1,500 1,378 BEARISH 5.23
OEX S&P 100 750 800 736 BEARISH 5.23
RUT Russell 2000 450 550 457 Neutral 5.05
NDX NASD 100 3,200 4,000 3,101 BEARISH 5.23
MSH High Tech 860 1,000 853 BEARISH 5.23
XCI Hardware 1,360 1,600 1,299 BEARISH 5.19
CWX Software 1,100 1,300 1,092 BEARISH 5.23
SOX Semiconductor 960 1,200 910 BEARISH 5.19
NWX Networking 900 1,100 953 Neutral 5.05
INX Internet 550 800 508 BEARISH 5.23
BIX Banking 530 600 588 Neutral 5.11
XBD Brokerage 400 500 412 Neutral 5.05
IUX Insurance 540 620 628 BULLISH 5.16
RLX Retail 900 1,000 846 BEARISH 5.23
DRG Drug 355 400 391 Neutral 4.28
HCX Healthcare 710 800 793 Neutral 4.28
XAL Airline 140 155 156 BULLISH 5.25
OIX Oil & Gas 265 300 302 BULLISH 5.11
Posture Alert
Friday ended the week on a quiet note, as the major indexes stayed
in a narrow trading range throughout the day. However, the
volatility witnessed this past week was extreme, but it showed
that the bulls are out there waiting for the right time to truly
enter this market. Losers for the week include Internet (-8%),
Retail (-6.5%), Russell 2000 (-5%), and the NASDAQ 100 (-5%).
There are no current changes in posture.
****************
MARKET SENTIMENT
****************
Sunday, May 28, 2000
A Lack of Conviction!
This last week was witness to extreme volatility on below average
volume, yet momentarily; the bulls seemed ready to come out of the
closet as the indexes surged on Wednesday. This above average action
was brief, and was given back the following day. Overall, this past
week was a non-event, as a lack of "major" news held institutional
investors at bay. Friday's action was brutally slow, but heading into
the long holiday weekend, can you blame anyone for not wanting to jump
in?
Regardless, sentiment continues to be poor as traders and investors sit
on the sidelines waiting for an event to propel them back in. Looking
ahead to these next several weeks, the market-moving events will be
held in the bond market as economic indicators will make or break the
short-term outlook. The May employment report, due out next Friday,
will be the first major piece of the puzzle to decipher what the
central bank may or may not do at the June 27-28 Federal Open Market
Committee meeting. Currently, the futures market has priced in a 25
basis-point rate hike, so with the sentiment being so negative in the
bond market, upside surprises could be in the works.
Now looking at the most recent put/call ratios on the indexes, the
sentiment is still too bullish to indicate that we have reached a
bottom as of yet. Looking at the NASDAQ 100, the most recent put/call
ratios have been hovering around 1.25-1.60. Now during the major gains
last year as well as earlier this year, the put/call ratio was in the
2.50-4.00 range. What this market needs is more negative sentiment. We
need the throw-in-the-towel capitulation that finally sheds all the
weak hands. What we have now is a lack of conviction by both the bulls
and bears. As soon as the sentiment sways dramatically in favor of the
bears, is when we'll see a bottom in this market. Have a good week!
BULLISH Signs:
NASDAQ Short Interest:
As of May 15, the level of short sales not yet closed out, known as
short interest, climbed 4.80% to 2,780,161,105 shares. Should this
market get any kind of propelling good news, we could see a severe and
swift rally as shorts run to cover.
Mixed Signs:
Volatility Index (27.49):
Up until recently, the VIX has proved that the low 30's are an
excellent buying opportunity, and the low 20's continue to be a
great selling opportunity. The VIX recently broke the 52-week
high, so patience is prudent until the VIX establishes a new
trading range or gets back to the range.
Corporate Earnings:
Corporate earnings continue to be solid; however, there has been
no upside as most equities have sold off even in the wake of good
numbers.
BEARISH Signs:
Interest Rates (6.052):
With the long bond breaking significant support levels, new highs
may be attempted in the near future.
Liquidity Crunch:
With the fear of inflation, and the most likely scenario of
several more rate hikes, liquidity in the marketplace will become
a more significant issue and put more pressure on equities.
IPO Dilution:
$58.6 billion of stock was freed up for trading in March, $67.3
billion April, and $118.3 billion in May. This is too much
stock for the system to handle.
Energy Prices:
With the rapid rise in crude oil, everything from manufacturing
to transportation will be affected by higher costs. These higher
costs will be felt 1-2 quarters out, and could put pressure on
profit margins.
Investor Expectations:
More and more investors are now expecting high double-digit
growth if not triple-digit expansion in their portfolios. This
extreme positive sentiment could help fuel a future sell-off in
technology shares.
*****************************************************************
The Power of Sentiment Analysis
It has often been said that the crowd is right during the
market trends but wrong at both ends. Measuring and
evaluating the sentiment of the crowd, therefore, can give
savvy option traders a decided edge.
Pinnacle Index
*****************************************************************
OEX Friday Tues Thurs
Benchmark (5/26) (5/30) (6/1)
*****************************************************************
Overhead Resistance (775-800) 4.26
Overhead Resistance (745-770) 1.20
OEX Close 736.08
Underlying Support (715-740) 2.85
Underlying Support (680-710) 22.80
What the Pinnacle Index is telling us:
Underlying support is starting to pick up more bears, indicating
we could be close to a bottom. OTM underlying support is
extremely strong, indicating many are betting on a market crash.
Direct overhead is light, so if a rally were to occur, it would
not be met with great resistance.
Put/Call Ratio
*****************************************************************
Friday Tues Thurs
Strike/Contracts (5/26) (5/30) (6/1)
*****************************************************************
CBOE Total P/C Ratio .65
CBOE Equity P/C Ratio .61
OEX P/C Ratio 1.20
Peak Open Interest (OEX)
*****************************************************************
Friday Tues Thurs
Strike/Contracts (5/26) (5/30) (6/1)
*****************************************************************
Puts 740 / 7,555
Calls 800 / 6,388
Put/Call Ratio 1.20
Market Volatility Index (VIX)
*****************************************************************
Major
Date Turning Point VIX
*****************************************************************
October 97 Bottom 54.60
July 20, 1998 Top 16.88
October 8, 1998 Bottom 60.63
January 11, 1998 Top 26.38
March 4, 1999 Bottom 28.15
May 14, 1999 Top 25.01
July 16, 1999 Top 18.13
August 5, 1999 Bottom 32.12
October 15, 1999 Bottom 32.06
January 28, 2000 Bottom 29.09
April 14, 2000 Bottom? 39.33
May 26, 2000 27.49
*************
COMING EVENTS
*************
For the week of May 29, 2000
Monday
Markets Closed in Observation of Memorial Day
Tuesday
Consumer Confidence May Forecast: 137.0 Previous: 136.9
Wednesday
New Home Sales Apr Forecast: 940 K Previous: 966 K
Chicago PMI May Forecast: 57.0% Previous: 56.4%
Leading Indicators Apr Forecast: 0.1% Previous: 0.1%
Thursday
Initial Claims 05/27 Forecast: 280 K Previous: 284 K
Auto Sales May Forecast: 7.4 M Previous: 7.3 M
Truck Sales May Forecast: 7.8 M Previous: 7.5 M
NAPM Index May Forecast: 55.5% Previous: 54.9%
Friday
Nonfarm Payrolls May Forecast: 375 K Previous: 340 K
Unemployment Rate May Forecast: 3.9% Previous: 3.9%
Hourly Earnings May Forecast: 0.4% Previous: 0.4%
Average Workweek May Forecast: 34.6 Previous: 34.6
Factory Orders Apr Forecast: -3.0% Previous: 2.8%
Week of June 5th
06/05 NAPM Services
06/06 Productivity - Rev.
06/06 Wholesale Inventories
06/07 Consumer Credit
06/08 Initial Claims
06/08 Export Prices ex-ag.
06/08 Import Prices ex-oil
06/09 PPI
06/09 Core PPI
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This newsletter is a publication dedicated to the education
of options traders. The newsletter is an information service
only. The information provided herein is not to be construed
as an offer to buy or sell securities of any kind. The
newsletter picks are not to be considered a recommendation
of any stock or option but an information resource to aid the
investor in making an informed decision regarding trading in
options. It is possible at this or some subsequent date, the
editor and staff of The Option Investor Newsletter may own,
buy or sell securities presented. All investors should consult
a qualified professional before trading in any security. The
information provided has been obtained from sources deemed
reliable but is not guaranteed as to accuracy or completeness.
The newsletter staff makes every effort to provide timely
information to its subscribers but cannot guarantee specific
delivery times due to factors beyond our control.

The Option Investor Newsletter 5-28-2000
Sunday 2 of 5
**************
TRADERS CORNER
**************
Watch the Blocks
By Mary Redmond
Wednesday of this week was one of the most optimistic days we
have experienced in months. We had over 2 billion shares
traded on the NASDAQ and over 1.1 billion on the NYSE. When
we have high volume on an up day it usually indicates that
heavy buying is taking place.
Another important statistic is the amount of block trades
executed. On Wednesday May 24, there were 24,833 block trades
reported on the NYSE. This is a substantial increase from
the prior day's report of 10,000 to 18,000 block trades.
In addition, the NASDAQ reported 23,483 block trades compared
to 16,386 on Tuesday of this week. Block trades are recorded
on both the NYSE and the NASDAQ, and are reported in most
major newspapers. This is one of the most accurate ways of
estimating how much institutional buying or selling is taking
place.
A block trade is generally a trade of 10,000 or more shares
which is purchased by a large fund or institutional investor.
The traders on the floor who execute these trades usually
try to match an institutional buyer and seller. If you look
at the live charts on the OIN web site sometimes you can see
large size trades going through. If you do some research
you can also determine approximately how many block trades
per stock were executed and if this is above or below the
daily average. If a lot of block trades occur on an up day
in the market it can indicate that institutions may be buying.
Since many large mutual funds can receive many millions of
dollars a day in cash during active periods it is usually
not very realistic for them to buy small lots of stock. They
usually buy large blocks of large market capitalization stocks
which are highly liquid and can be easily bought and sold on
the exchanges without adversely impacting the share price.
What we are looking for is a consistent increase in the number
of block trades executed on both the NYSE and NASDAQ on up
days in the market.
The NASD reports the monthly and yearly block trading volume
on the NASDAQ, and from 1994 to 2000 there has been a steady,
consistent increase in the block volume and number of daily
block trades executed on the NASDAQ. In 1994, the block
volume total was approximately 28 billion shares, and this
constituted 42.8% of the volume on the NASDAQ. In 1999, the
total block volume was approximately 62.5 billion shares which
comprised 24.6% of the total volume. From January of 2000 to
April of 2000, the block trades comprised between 20 and 22.4%
of the total NASDAQ volume, or approximately 400 million shares
on a strong day.
There is also a block index indicator which calculates the
number of upticks and downticks of single block trades of
10,000 shares or more. An uptick generally indicates a buyer
and a downtick generally indicates a seller. When the ratio
of upticks is higher it can indicate that the institutions
are buying heavily and using all their cash reserves. When
the ratio of downticks is higher it can indicate that the
institutions are selling and raising cash. This can be a
contrary indicator, as periods of very heavy buying may leave
little cash for future buying, and periods of heavy selling
increase the cash reserves.
It is not always possible to obtain a precise report of exactly
how much money went into the U.S. equity funds on a daily basis.
The fund flows are generally most reliable and accurate when
reported on a weekly or monthly basis. There is too much cash
going into thousands of funds nowadays to make daily accounting
realistic. The fund families will generally receive investors'
checks and deposit them the same day or the following day and
invest the money within a few weeks. A weekly or monthly average
of the fund flows is a more accurate indicator of market sentiment.
According to trimtabs.com, for the week ending May 17 we had
record inflows to equity funds of over $15.6 billion, with over
$13 billion going to U.S. stock funds. According to AMG Data
Services, the week ending May 24 showed a net outflow of $7.6
billion out of equity funds. This is only a weekly report,
and we have had weeks following outflow reports when the
market rallied, so it is best to use the fund flow indicator
over a monthly period.
Contact Support
*****
Calendar Put Spreads--My New Vacation Strategy
By Lynda Schuepp
Summer is approaching and I am now re-evaluating my "poolside"
investing strategies. As the smell of the barbecue grill wafts
highly in the air and gleeful laughs can be heard from the kids
in my pool, I reflect to my own younger days of summers past.
I remember the anticipation of waiting for those long sunny days-
hiking in the mountains, walks on the beach, and cannonballs off
the high diving board. The kid in me says, "I wanna go out and
play". I don't really want to spend 8 hours a day staring at
this screen while looking out my window at a beautiful day.
New England has such short sweet summers. When they come they
are spectacular and I, for one, would never want to miss out on
them. Time to shift gears on my trading strategies.
At our most recent Boston Option Club meeting, we had a speaker
whose topic was spreads. Now you all know from my past articles
that I do love spreads. I didn't expect to learn much and
expected to hear the same old, same old--spreads provide limited
return, but have limited downside risk, blah blah blah. Of
course during these turbulent times, we "spreaders" lost a lot
less money than the naked jaybirds and weren't subject to margin
calls. At this meeting, I was introduced to a type of spread
that I myself had never done--calendar spreads using leap puts.
I have done calendar spreads using calls but never with long
term puts. Now could be the time to initiate this strategy.
First, a definition and expectations are in order. A "calendar
put spread" is constructed by selling a near-term put and buying a
longer-term put, with the SAME strike price. Your risk is limited
to the cost of the spread. However, there is some assignment risk
if the shorter-term option loses all time value. The deeper the
option goes "in the money" the less time value it has as it
approaches a delta of 1. Some options will trade at parity
(no time-value left) or below parity. You do not want to hold a
short put with no time-value unless you want to own the stock.
The speaker's recommendation was to use deep "in the money"
strikes on stocks that are fallen angels. Candidates for this
strategy include good quality, strong stocks that are at a support
level and have good upward potential. These stocks should have
seen highs, which were 25-50% higher than the stock is currently
priced.
The maximum reward is harder to quantify but would be reached if
the stock ran up to the strike price at expiration of the near
term option. The near term short option would be worth zero and
you would get to keep the premium and the longer-term option would
have value and could be sold at that point. Your profit would be
the premium you received from the short option, less the cost to
enter the spread plus the value of the longer-term option. In
order to "guesstimate" the value of the long option you could
use current "at the money" prices of the near term option.
An example is probably in order here. This is not meant to be
taken as a recommendation, merely an example of how the strategy
could be implemented. I looked at JDSU, which is a good quality
fallen angel with real earnings that has gotten battered in the
bear market along with the profitless Internet stocks. Support
for JDSU is at 80 and the stock is currently trading a little
above this level. Overhead resistance is at 120 and 150.
In order to put on a calendar put spread, you would buy the
Jan'02 puts and sell the Jan 01 puts, using the same strike
price. A strike should be selected based on your projection of
what the stock could be worth by January 01 since the maximum
profit is obtained if the stock reaches the strike by expiration
of the near term option. Assuming your projection was $120
(previous resistance) by January 2001, you could sell the Jan'01
120 put for about $48.50 and buy the Jan'02 put for about
$57.63 with the same strike price. The approximate cost of this
spread as of Friday's close would be about $9.13. The projected
maximum gain if JDSU hits $120 by January would be about 59. That
is a 6:1 risk/reward ratio. Not bad for a pretty conservative
strategy. Assuming JDSU gets to $120 by January, the projected
gain was calculated as follows:
ADD +48.50 (premium received for Jan'01 put expiring worthless)
LESS - 9.13 (the cost of the spread)
PLUS +20.13 (estimated value for Jan'02 put in January 01)
The value of the long leg (Jan 02) can be estimated by looking at
the January '01 "at the money" option now. Currently JDSU is
trading at $80.50 and the Jan'01 80 put is selling at $20.13.
I was really excited when I heard about this strategy as were
just about everybody else who attended the meeting. So remember,
in these depressing times, one can find some great opportunities.
Of course, you could just sell the Jan'01 put naked, but some of
us have been there and done that. The strategy is elegant and
really quite simple. I like to think of this strategy as a
naked put with an insurance policy. So if you're like me and
would like to find a strategy that doesn't require minute by
minute baby-sitting, this one is for you. There are tons of
candidates, thanks to the recent market correction. Do your
research now and have some fun this summer.
Happy Memorial Day to all.
Contact Support
*************
READERS WRITE
*************
Dear OIN;
I would like to know more about a calendar or time spread. Does a
broker require capital to put on a time spread? If your buying a
equal strike price put/call for each put/call that you sell, aren't
you covered in case someone were to exercise the put/call? So why
would capital be required?
If the put/call were exercised, wouldnąt the broker automatically
take the bought put/call from your account to cover the
transaction? If not, why?
I hope that you can give me a straight answer and not just point
me to a FAQ site.
Thank For Your Help...
***
Concerning collateral requirements for calendar spreads:
First, the definition of a Calendar (Time) Spread:
This spread can be created by selling an option at a specific
strike price and buying a longer term option with the same
strike price. The investor profits most when the stock price
is near the strike price at expiration. The investor can then
close the spread for a small profit by selling the long position
or continue the play by selling a new (short) option against
the current long position. He can also hold the contract until
expiration hoping the value of the option will increase. The
philosophy for using calendar spreads is that time will erode
the value of the short term option at a faster rate than it will
the long term option. This type of spread play is one of the
most conservative and profitable positions available to novice
traders and we offer many candidates for this strategy each
month.
As far as collateral, a broker should not require any additional
funds to secure a pure calendar spread. As you said, buying
a longer term, equal strike price option for each option that
you sell will "cover" the "short" position's obligation. However,
an E-broker (such as Etrade) will not generally exercise the
long option for you, in the event of early assigment of the
short option. That is your responsibility. In most cases, the
broker would simply assign your account a short position in
the underlying shares of stock.
Of course you should always check with your broker for any
specific issues concerning combination positions.
Good Luck!
************
DEAR OIN;
(Regarding Covered-calls with LEAPS)
Ok, buy the leap when it is below intrinsic value and sell the near
term call when it has excessive time value in its price. Got it!
Now, please explain in english how a poor tyro like myself goes
about finding out what leaps are below intrinsic value, and what
near term calls have excessive time value!
Thanks
***
Concerning Option Pricing and Fair Value:
The most important factors in option trading are market movement,
option volatility, and time decay. The knowledge of these concepts
is paramount to profitable trading and without a suitable basis,
you will likely enter the market at a theoretical disadvantage.
The first requirement is familiarity with option pricing. We have
the ability to measure the value of an option through mathematical
evaluation and if you aren't prone to formulas, pricing models
will help you determine the fair market value of an option. Many
of the established tools for pricing options are free and they
should be used before opening any position. In volatile issues,
the emotional optimism of traders can cause prices to vary widely
from their true worth. Without a realistic estimate of the value
of an option, you will often pay an excessive amount for the
rights inherent in the contract. Remember, in the majority of
investment techniques, the end result is a product of what you
know, and how well you act upon it.
There are option volatility calculators at various sites on the
Internet. One of the most popular (free) tools is at:
http://www.cboe.com/tools/optcalcu.htm
For more information, read the appropriate chapters in McMillan's
"Options as a Strategic Investment" and Natenburg's "Option
Volatility and Pricing", these are two of the bibles of floor traders
and they may shed some light on the subject of combinations
and spreads and the appropriate entry/exit/adjustment strategies.
Good Luck!
*************
DAILY RESULTS
*************
Index Last Week
Dow 10299.24 -327.61
Nasdaq 3205.11 -185.29
$OEX 736.08 -16.87
$SPX 1378.02 -28.93
$RUT 457.37 -22.33
$TRAN 2687.55 -54.45
$VIX 27.49 -1.28
Calls Last Week
RBAK 72.06 9.13 New, another popular networker with buyers
SDLI 197.75 1.75 It's amazing what an upbeat report can do
CHKP 162.50 1.13 Some call it the "day traders dream"
P 53.63 0.44 Dropped, ran out of gas
ALL 26.81 0.25 Dropped, welcome to the world of rotation
ABT 41.69 0.13 Momentum play sparked by healthy breakout
ANDW 32.81 -0.06 Dropped, momentum waning
UNH 75.88 -0.50 Dropped, range bound and time value
TQNT 83.16 -0.59 New, the next move should be exciting
PLXS 79.50 -1.00 Dropped, volatility but no breakout
ITWO 95.50 -2.75 New, ITWO has found its rhythm
SCMR 76.50 -4.44 New, back with great earnings on May 18th
YHOO 112.06 -8.25 New, could the sleeping giant be waking?
SEPR 91.19 -8.56 Institutional ownership has increased
EXDS 62.00 -9.19 New, what goes down must come up
RMBS 163.00 -10.75 New, giving it another chance
AMCC 89.69 -11.94 New, looks like it has reached bottom
CIEN 99.69 -16.81 One word that analysts love: growth
DNA 102.63 -23.38 New, closed back over 5-dma at $99.88
Puts
ANAD 27.81 -16.44 Problems continue to worsen
OPTV 39.25 -12.56 Dropped, endured wicked punishment
FDRY 55.00 -10.50 Taken to lows below IPO price
EXTR 44.06 -9.31 Rough decline with outlook still grim
DCLK 41.13 -9.25 New, chart shows traders' nervousness
INCY 49.06 -8.69 Shriveling grape in the heat of the market
PCLN 36.13 -8.63 Welcome to "The Price Is Wrong!"
HLIT 38.00 -8.13 Apocalyptic Fed meeting cost HLIT $26.38
ICIX 24.94 -5.94 Seems to be having "bad hair" days
TRW 48.00 -4.81 New, virtually ignoring rest of the market
NTOP 26.50 -4.63 Bad news in an already troubled environmt.
AZPN 20.19 -2.19 Dropped, at the bottom of the slope
NTLI 57.88 3.13 Dropped, stock stabilized
STOCKS ADDED TO THE PICK LIST
*****************************
Calls
ITWO - I2 Technologies
AMCC - Applied Micro Circuits Corp.
TQNT - Triquint Semiconductor
EXDS - Exodus Communications
YHOO - Yahoo! Inc.
RMBS - Rambus Inc.
SCMR - Sycamore Networks
RBAK - Redback Networks
DNA - Genentech
Puts
DCLK - DoubleClick
TRW - TRW Inc.
***************************
PICKS WE DROPPED THIS WEEK
***************************
Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.
CALLS
ALL $26.81 (+0.06) Welcome to the world of rotating sector
strength. It seems nothing stays in favor for more than a week
and the Insurance sector is no exception. Looking impressive
all the way until Wednesday, the sector got torpedoed by
negative comments about the brokerage sector on Thursday
(which consequently put a drag on anything related to
Financial stocks), and sank a whopping $3.19. The predictable
Friday lethargy couldn't lift ALL out of its stupor, and with
volume dropping off again, it looks like the momentum is gone.
Enthusiasm for Insurance stocks has fled to other areas, and
we will follow suit tonight; putting on our running shoes, we
are going out in search of new cheese.
ANDW $32.81 (-0.06) A momentum play is only good as long as
the momentum remains intact. ANDW looked great for most of
last week, as it held major support at $30 in the face of
more carnage in the tech sector. Then on Thursday it formed
a higher low and it looked like a sure winner as it charged
higher Friday morning. Alas, it wasn't to be. The $34
resistance level was too much to bear in the face of the
apathy on the broader markets. With its second failure to
penetrate this level in as many weeks, it looks like the
bears have sapped away the momentum and along with it our
enthusiasm. We'll drop ANDW until the bears go back into
hibernation and the momentum returns.
UNH $75.88 (-0.50) This week we saw UNH move to the upside and
set a new 52-week record ($79.25) on Wednesday on more than
double the volume to boot. But overall two words express UNH's
performance, range trading. The stock's been channeling
primarily between $75 and $79. It's a good sign that near-term
support level is higher at the intersection of the 5 and 10 DMAs
($76.41 and $76.08). However, time is wasting. We decided to
exit this momentum play instead of wait for UNH to challenge the
$80 barrier.
PLXS $79.50 (-1.00) Lots of volatility, but no breakout to the
upside of $80 this week to hint at short-term future gains.
When we first initiated coverage on PLXS, we were rewarded with
a promising 10+ point right from the get-go! Although as the
days followed, we watched as the negative market pressure play
havoc with the share price. It's certainly very disappointing
to see a potential money-maker return to firm support ($75-$78)
and then find such formidable resistance at the $80 mark. OIN
anticipated a much longer momentum run for this split-candidate.
Nonetheless, we know it's time to burn the PLXS bridge and find
another path to riches.
P $53.63 (+0.44) Whoops, looks like our play in Phillips
Petroleum may have run out of gas. While the energy sector
has proved to be a safe haven for investors over the past
few months, we don't believe that P is necessarily going to
reverse its current uptrend, however it could be heading for
a period of profit taking or at least consolidation. After
making a new high for the week, Phillips experienced what is
called an outside down day. This typically is viewed as
negative for a stock that's heading higher. As we said P
moves rather slow, and with other potential new plays coming
on board, we will concentrate our efforts elsewhere for now.
PUTS
NTLI $57.88 (+3.13) Despite the concerns of high valuations and
the uncertainty over NTLI's future, the stock has stabilized at
its current levels. NTLI has established major support around
the $55 level. During Friday's session, NTLI briefly dipped down
to $56 only to quickly rebound into the holiday weekend.
Although volume was anemic for the entire market Friday, traders
exchanged a scant 597 K shares in NTLI. That's compared to an
ADV of 1.9 mln! Additionally, the rumors of NTLI acquiring FREE
have begun to present risk to our put play. With the lack of
action and current consolidation it's time to turn our attention
elsewhere.
OPTV $39.25 (-12.56) After enduring three weeks of wicked
punishment, OPTV finally found support towards the latter-half of
last week. The stock has now established solid support near its
52-week low, in the $36 area, and solidified that level during
Friday's trading. In fact, OPTV managed to rally higher during
Friday's lackluster session. The pending SPYG merger still
presents risk for shareholders of OPTV. But for the time being,
it appears that OPTV has found bottom. The rally Friday could
signal that OPTV has fallen far enough, for now. At this time,
we feel good about locking in profits and selling too soon.
AZPN $20.19 (-2.19) Like a skier at the bottom of an exciting
downhill run, AZPN has run out of momentum. The most recent
slide, which began near $36, at the top of the descending
channel, was accompanied by strong and increasing volume. The
heavy volume (60% over the ADV) continued through Tuesday, and
then began tapering off. Recall our cautionary note on
Thursday about declining volume; it would likely be our first
indication that the downward move was running out of steam.
Thursday's late-day plummet on a burst of volume was
encouraging, but on Friday, it became clear that AZPN was
done, as it saw less than 60% of its ADV and actually posted
a gain for the day. The stock has moved within $1.25 of
major support at $18, and with today's lack of enthusiasm
for more declines, we're dropping it in favor of more lively
plays.
STOCKS WITH UPCOMING SPLITS
****************************
We don't list all splits available, only those we
feel may have play possibilities.
Symbol - Stock Splits/Date
AEG - AEGON N.V. 2:1 05-30-00 ex-date 05-31
SCH - Charles Schwab 3:2 05-30-00 ex-date 05-31
IBI - Intimate Brands 2:1 05-30-00 ex-date 05-31
LTD - The Limited 2:1 05-30-00 ex-date 05-31
KEI - Keithley Inst. 2:1 06-01-00 ex-date 06-02
KEM - KEMET 2:1 06-01-00 ex-date 06-02
AVX - AVX Corp 2:1 06-01-00 ex-date 06-02
AES - AES Corp 2:1 06-01-00 ex-date 06-02
MOT - Motorola 3:1 06-01-00 ex-date 06-02
PWER - Power-One 3:2 06-02-00 ex-date 06-05
EMC - EMC Corp 2:1 06-02-00 ex-date 06-05
KPN - KPN Telecom 2:1 06-02-00 ex-date 06-05
MEDI - Medimmune 3:1 06-02-00 ex-date 06-05
NXTL - Nextel Comm 2:1 06-06-00 ex-date 06-07
FKL - Franklin Capital 3:2 06-07-00 ex-date 06-08
CPN - Calpine Corp. 2:1 06-08-00 ex-date 06-09
CAKE - Cheesecake Fact. 3:2 06-08-00 ex-date 06-09
VSH - Vishay Intertech 3:2 06-09-00 ex-date 06-12
LMGA - Liberty Media Grp2:1 06-09-00 ex-date 06-12
CMB - Chase Manhattan 3:2 06-09-00 ex-date 06-12
ANEN - Anaren Micro 3:2 06-09-00 ex-date 06-12
AA - Alcoa 2:1 06-09-00 ex-date 06-12
HC _ Hanover Comp. 2:1 06-13-00 ex-date 06-14
RHI - Robert Halg Intl 2:1 06-12-00 ex-date 06-13
RMBS - Rambus 4:1 06-14-00 ex-date 06-15
HSP - Hispanic Broad. 2:1 06-15-00 ex-date 06-16
CKH - Seacor Smit Inc. 3:2 06-15-00 ex-date 06-16
IFIN - Investors Fin. 2:1 06-15-00 ex-date 06-16
CYBE - CyberOptics 3:2 06-15-00 ex-date 06-16
MXT - Metris Companies 3:2 06-15-00 ex-date 06-16
JNPR - Juniper Networks 2:1 06-15-00 ex-date 06-16
IPAR - Inter Parfums 3:2 06-15-00 ex-date 06-16
NXLK - Nextlink 2:1 06-15-00 ex-date 06-16
CHP - C&D Technologies 2:1 06-16-00 ex-date 06-19
DLTR - Dollar Tree 3:2 06-19-00 ex-date 06-20
RHB - RehabCare Grp. 2:1 06-19-00 ex-date 06-20
MTZ - MasTec Inc. 3:2 06-19-00 ex-date 06-20
SEIC - SEI Investments 3:1 06-19-00 ex-date 06-20
POOL - SCP Pool Corp. 3:2 06-19-00 ex-date 06-20
MEAD - Meade Inst. 2:1 06-19-00 ex-date 06-20
EXDS - Exodus Comm 2:1 06-20-00 ex-date 06-21
AAPL - Apple Computer 2:1 06-20-00 ex-date 06-21
CDWC - CDW Computer 2:1 06-21-00 ex-date 06-22
NVDA - NVIDIA Corp. 2:1 06-26-00 ex-date 06-27
MRCL - Micrel Inc. 2:1 06-27-00 ex-date 06-28
TQNT - TriQuint Semi. 2:1 07-11-00 ex-date 07-12
XETA - Xeta Corp 2:1 07-17-00 ex-date 07-18
TBL - Timberland Comp. 2:1 07-17-00 ex-date 07-18
TIF - Tiffany and Co. 2:1 07-20-00 ex-date 07-21
INTC - Intel Corp. 2:1 07-28-00 ex-date 07-31
AIG - American Intl. 3:2 07-28-00 ex-date 07-31
POS - Catalina Mktg. 3:1 08-17-00 ex-date 08-18
For a complete list of all the coming splits check out the
"split calendar" on the side of the online edition newsletter
page.
********************
THE PLAYS OF THE DAY
********************
With all the great plays each week we can never decide
on just one so take your pick.
Call plays of the day:
**********************
CHKP - Check Point Software $162.50 (+1.13)
See details in sector list
Chart = /charts/charts.asp?symbol=CHKP
****
RMBS - Rambus Inc. $163.00 (-10.75)
See details in sector list
Chart = /charts/charts.asp?symbol=RMBS
Put play of the day:
********************
ICIX - Intermedia Communications $24.94 (-5.94)
See details in put list
Chart = /charts/charts.asp?symbol=ICIX
*************
DEFINITIONS
*************
SL = Suggested stop loss. Sell if bid breaks this price.
OI = Open Interest - the number of open contracts outstanding.
TP/P= True premium or Time premium
RRR = Risk/Reward/Ratio
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume
MTD = Move to double - amount stock must move to double option price
in one week. ONE WEEK MOVE ONLY !
Numbers within ( ) are the amount of change for the week.
Numbers within ( ) may be designated with PxW, like P3W, prior 3
weeks
The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.
Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;
Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"
Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.
RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.
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**************************************************************
****************************
SEE DISCLAIMER IN SECTION ONE

The Option Investor Newsletter 5-28-2000
Sunday 3 of 5
**********
CALL PLAYS
**********
*************
SEMICONDUCTOR
*************
RMBS - Rambus Inc. $163.00 (-10.75)
Rambus Inc. develops and licenses high bandwidth chip connection
technologies to enhance the performance of computers, consumer
electronics and communications products. Current Rambus-based
computers supported by Intel chipsets include Dell, Compaq,
Hewlett-Packard, and IBM PCs and workstations. Sony's
PlayStation video game system uses Rambus memory. Providers of
Rambus-based integrated circuits include the world's leading
DRAM, ASIC and PC controller manufacturers. Currently, eight of
the world's top-10 semiconductor companies license Rambus
technology.
Perhaps we were a bit hasty in our decision to drop RMBS on
Thursday. Actually, given the circumstances it was probably
the correct decision, however, with Friday's move we are giving
the chip developer another chance. The 6% move up came on light
volume, but the interest shown the last thirty minutes of the
session was encouraging. What was behind the strength seen
on Friday? We aren't exactly sure. As you know RMBS received
shareholder approval this week to increase its shares and
proceed with its previously announced 4-for-1 split, which may
have brought a few folks back to the table. Also, RMBS and
the chip stocks have had a tough go of it the last month or so,
and with the favorable economic data out today, investors may
have began to test the waters for a possible rally after the
holiday weekend. There was little in the way of company specific
news. Intel said a replacement for its faulty chip would be
ready soon, and once the new component is available, they plan to
resume making their "820 chipset" available for use with
standard memory, not with high-speed Rambus based memory.
Our recent attempt to profit from RMBS provided some with
a great return, while for others it proved to be a rocky road.
While the economic calendar is packed full of reports next week,
it appears as though the stage is set for improved sentiment in
the broad markets. If that's the case then our new play could
once again take flight. Technically, RMBS is coming out of the
oversold territory, indicating a continued move higher. Intraday
support shows up near $160, $155 and $150. Whether entering on
a bounce off support or further upward momentum, confirm the
volume and the condition of the chip sector and the NASDAQ
prior to placing an order. Given the current market environment,
traders entering new positions should be prepared to protect
profits as well.
Other than the shareholders meeting there was little news for
RMBS for this week. The most recent upgrade of note came from
analysts at Warburg Dillion Read in mid April, when the company
reiterated their Strong Buy rating, with a price target of $350.
Since then much water has crossed under the bridge, however, the
fundamentals have changed very little and RMBS was trading just
over $200 at the time of the brokers comments.
BUY CALL JUN-160 BYQ-FL OI=276 at $19.00 SL=13.75
BUY CALL JUN-170*BYQ-FN OI=318 at $15.25 SL=11.00
BUY CALL JUN-180 BYQ-FP OI=617 at $11.00 SL= 8.25
BUY CALL JUL-165 BYQ-GM OI= 22 at $30.50 SL=22.00
BUY CALL AUG-170 BYQ-HN OI=114 at $34.50 SL=25.00
SELL PUT JUN-160 BYQ-RL OI=520 at $14.63 SL=20.00
(See risks of selling puts in play legend)
Picked on May 28th at $163.00 PE = N/A
Change since picked +0.00 52 week high=$471.00
Analysts Ratings 1-1-2-0-0 52 week low =$ 58.50
Last earnings 04/00 est= 0.14 actual= 0.15
Next earnings 07-12 est= 0.16 versus= 0.08
Average daily volume = 3.82 mln
/charts/charts.asp?symbol=RMBS
****
AMCC - Applied Micro Circuits Corp. $89.69 (-11.94)
Fulfilling the need for speed, AMCC is a global provider of
high-performance, high-bandwidth integrated circuits used to
control the high-speed flow of transmissions through fiber-optic
telephone networks. Communications products, used in LANs and
WANs, account for 55% of the company's sales. The company's
chips are also used in automated test equipment, high-speed
computing, HDTV, and military applications. The company which
is growing through acquisitions, has a top-flite client list,
including Nortel, Raytheon, Alcatel, Cisco, 3Com and Lucent.
Although the recent market decline has not been kind, AMCC looks
like it has reached bottom and is preparing to move higher. The
stock is nearly 50% off its March highs and has spent the last
six weeks forming a descending wedge. After a brief dip below
$66 on April 17th, the stock only violated support at $84 once
(last Wednesday), and the recovery was swift. Last Wednesday's
decline halted right on the 200-dma ($72.38 at the time), which
is well above the April 17th low. Descending lows are a bearish
sign, and are likely a sign of the overall market sentiment.
The market is still jittery about future interest rate hikes,
but AMCC's financials look strong and the company continues to
provide what investors love; earnings that are consistently
above street estimates and revenues that grow every quarter.
Positioned to benefit as the fully optical network is built,
our appetite for the company's products is showing no signs of
letting up, and we think the stock is poised for a breakout.
Near term resistance is found at $94; more conservative traders
may want to wait for the stock to move through this level with
convincing volume before initiating new positions.
The company continues to release products at a furious pace,
many of which are industry firsts. The latest release was the
S2009, the company's latest addition to the serial backplane
transceiver family, featuring a broad operating range of 1.3-1.6
Gbps per channel. The S2009 utilizes cost-effective CMOS
technology that offers the best power and performance
combination for high-density designs in the backplane for Local
and Wide Area Networks.
BUY CALL JUN-85 AEX-FQ OI=134 at $12.63 SL= 9.50
BUY CALL JUN-90 AEX-FR OI=213 at $10.25 SL= 7.25
BUY CALL JUN-95*AEX-FS OI=423 at $ 8.13 SL= 5.75
BUY CALL JUL-90 AEX-GR OI= 56 at $15.63 SL=11.25
BUY CALL AUG-95 AEX-HR OI=192 at $21.38 SL=16.00
SELL PUT JUN-80 AEX-RP OI=460 at $ 5.25 SL= 7.50
(See risks of selling puts in play legend)
Picked on May 28th at $89.69 P/E = 213
Change since picked +0.00 52-week high=$158.88
Analysts Ratings 11-3-0-0-0 52-week low =$ 13.06
Last earnings 04/00 est= 0.14 actual= 0.16
Next earnings 07-19 est= 0.17 versus= 0.06
Average Daily Volume = 3.96 mln
/charts/charts.asp?symbol=AMCC
****
TQNT - Triquint Semiconductor $83.16 (-0.59)
A leading global supplier of a broad range of high performance
integrated circuits, TQNT offers standard and customer specific
products as well as foundry services. The company uses gallium
arsenide (GaAs) instead of silicon as the substrate (base) for
its analog, digital, and mixed-signal integrated circuits (ICs).
GaAs ICs operate at greater speeds than silicon chips, or at
the same speeds with less power consumption, making them ideal
for all sorts of gadgets, such as cell phones, pagers,
fiber-optic and satellite telecom equipment, and data
networking devices. Playing with the big boys, its clientele
includes Nortel, Alcatel, Ericsson, Lucent, and Raytheon.
Semiconductor stocks look like they are getting ready to break
out. Chart after chart shows descending wedges forming over
the past 4-6 weeks, with support levels holding rock solid.
TQNT is no exception; with support at $71, the descending
trendline will cross this level within the next 2 weeks. The
spring is coiled and all we need is a catalyst to drive the
price higher; when the move comes, it could be very exciting.
Investors are starved for any kind of news that will help to
pull the market out of the abyss, and the Semiconductor sector
is a good candidate to lead the charge. TQNT has now
challenged the 200-dma ($63.56) a total of three times over
the past 2 months and it continues to provide strong support.
Volume is strong one day and weak the next, but the recovery
last Wednesday was encouraging, as it came on volume exceeding
the ADV by 50%. This just adds to our conviction that buyers
are waiting to step in at current support levels, and all we
need is a catalyst to power the recovery out of this declining
trend. Although it is still a ways off, the upcoming split
could be just what this stock needs to power forward through
the summer. On May 11th, the company announced a 2-for-1 split,
payable on July 11th. Use intraday dips to support as
opportunities to acquire a better entry point, but wait for the
bounce. In this jittery market, it doesn't pay to try to catch
a falling knife. Volume will drive this stock higher, so if it
doesn't accompany the rally, you know the conviction just isn't
there.
In a rush of techno-speak on Wednesday, TQNT released a radio
frequency (RF) transmit solution for dual band CDMA handsets.
The company also announced last Wednesday that it has entered
into an agreement to purchase Micron Technology's Richardson,
Texas, wafer fabrication facility.
BUY CALL JUN-80 TNN-FP OI= 80 at $ 8.88 SL=6.25
BUY CALL JUN-85*TNN-FQ OI=143 at $ 6.63 SL=4.50
BUY CALL JUN-90 TNN-FR OI=211 at $ 4.50 SL=2.75
BUY CALL JUL-90 TNN-GR OI= 11 at $ 9.50 SL=6.75
BUY CALL AUG-90 TNN-HR OI=233 at $12.13 SL=9.00
SELL PUT JUN-75 TNN-RO OI=155 at $ 3.50 SL=5.50
(See risks of selling puts in play legend)
Picked on May 28th at $83.16 P/E = 101
Change since picked +0.00 52-week high=$135.50
Analysts Ratings 7-2-4-0-0 52-week low =$ 11.38
Last earnings 04/00 est= 0.19 actual= 0.25
Next earnings 07-19 est= 0.27 versus= 0.13
Average Daily Volume = 1.63 mln
/charts/charts.asp?symbol=TQNT
********
BIO-TECH
********
DNA - Genentech $102.63 (-23.38)
Headquartered in South San Francisco, Genentech, Inc., is a
leading biotechnology company that discovers, develops,
manufactures and markets human pharmaceuticals to treat life-
threatening medical conditions such as heart attack, stroke, and
breast cancer. Genentech markets seven products directly in the
United States. They also manufacture and market seven protein-
based pharmaceuticals, and licenses several others to other
companies. They are the Big Kahuna of the biotech industry.
Primarily driven by bad news manifesting itself in the stock
price early Monday morning and Tuesday, DNA struggled before
bouncing hard intraday at $84.50 in Ugly Wednesday's trading and
managed a close at firm historical support of $92. Thursday and
Friday, this biotech powerhouse staged a nice recovery, moving
back over its 5-dma of $99.88 for a close back over its former
support of $100. Why? Perhaps it has something to do with its
drug, Herceptin, being approved for launch by Roche
Pharmaceuticals as a breast cancer treatment in Europe. It
should be a blockbuster. (Roche owns 58% of DNA.) Technically,
DNA looks strong going forward. The next resistance hurdle is
$108, then again at $114, its gap down opening price on Monday.
Then comes the tough part - filling the gap from $114 to $120
from which it fell. $120 also happens to be the 200-dma, which
may provide a psychological resistance level by inducing
investors that held through the downdraft to unload with the
intent of "breaking even". Even so, $102 to $114 leaves plenty
of room for upside. We think given the oversold condition of the
stock that one could make a case for getting in at this level.
However, if you want to wring the last dollar from the trade, you
can consider targeting $100.
Ready for the science that might have helped with the reversal?
According to briefing.com, DNA "announced preliminary positive
results from two Phase II clinical trials evaluating the
company's investigational recombinant humanized monoclonal
antibody to vascular endothelial cell growth factor (rhuMAb-
VEGF), or anti-VEGF. DNA has clinical evidence that anti-VEGF
monoclonal antibody may inhibit certain solid-tumor growth and
says that Phase III trials in larger patient populations are
needed to better understand the potential of anti-VEGF to improve
patient outcomes." For those without a medical background, note
that the news prompted Salomon Smith Barney to reiterate their
Buy rating with a price target of $200.
BUY CALL JUN- 95 DNA-FS OI= 12 at $11.00 SL= 8.25
BUY CALL JUN-100*DNA-FT OI=1175 at $ 9.25 SL= 6.25
BUY CALL JUN-105 DNA-FA OI= 53 at $ 7.00 SL= 5.00
BUY CALL JUL-100 DNA-GT OI= 802 at $12.75 SL= 9.50
BUY CALL SEP-105 DNA-IA OI= 0 at $16.25 SL=11.75
SELL PUT JUN- 90 DNA-RR OI= 150 at $ 3.63 SL= 5.75
(See risks of selling puts in play legend)
Picked on May 28th at $102.63 P/E = N/A
Change since picked +0.00 52-week high=$245.00
Analysts Ratings 4-6-3-0-0 52-week low =$ 58.25
Last earnings 04/00 est=-0.04 actual= 0.04 surprise = 200%
Next earnings 07-12 est= 0.29 versus= 0.28
Average Daily Volume = 1.2 mln
/charts/charts.asp?symbol=DNA
****
ABT - Abbott Laboratories $41.69 (+0.13)(+4.56)
Abbott Laboratories is one the leading healthcare products
makers in the US. It operates five business segments:
Pharmaceuticals, Diagnostics, Hospitals, Ross products, and its
International division. More than 40% of sales is derived from
the pharmaceuticals and hospital products and includes the drug
Norvir, which treats HIV. Some well-known brands like Similac
(infant formula) and Ensure (nutrition supplement) can be found
on most supermarket shelves.
There's nothing fancy about this call play. ABT is purely a
momentum play sparked by the healthy breakout of the drug stocks
last week. ABT isn't a fast and furious mover, but there's no
question it's covering ground as it heads toward the 52-week
high. When ABT was first added to our list, the 52-week high stood
at $48.50. Because time is not stagnant and prices continually
change, that number is now a lower figure, $45.94, which
consequently brings ABT closer to its short-term goal. All in
all, ABT was quite the performer this week. Early on it bucked
the cynical sentiment of the Street and maintained a convincing
position above the stanch resistance of $39 and $40. Without
wavering from its course, ABT pressed on through $42. The
volume was respectable throughout the week's sessions, however,
$44 proved to be a bit too much for ABT. The downdraft in
Friday's "before the long weekend" sell-off needn't put UNH out
to pasture though. The current share price is in the proximity
of the now converged 5 and 10 DMAs at $42.68 and $41.16,
respectively. This level should provide a solid launching point
for entries next week. Wait for clear-cut direction, confirm
the market sentiment, and keep an eye on the Amex Pharmaceutical
Index ($DRG) before taking your positions.
On Thursday, ABN Amro began new coverage on UNH. Analyst Bruce
Cranna started the stock with an Outperform and issued a $50
price target. No other comments were available.
BUY CALL JUN-35 ABT-FG OI= 60 at $8.13 SL=5.75
BUY CALL JUN-40*ABT-FH OI=2040 at $2.69 SL=1.50
BUY CALL JUN-45 ABT-FI OI=1765 at $0.50 SL=0.00
BUY CALL JUL-40 ABT-GH OI= 244 at $3.63 SL=1.75
BUY CALL AUG-45 ABT-HI OI=1537 at $2.00 SL=1.00
Picked on May 21st at $41.56 P/E = 26
Change since picked +0.13 52-week high=$45.94
Analysts Ratings 10-9-5-0-0 52-week low =$29.25
Last earnings 03/00 est= 0.44 actual= 0.44
Next earnings 07-10 est= 0.44 versus= 0.42
Average Daily Volume = 3.80 mln
/charts/charts.asp?symbol=ABT
****
SEPR - Sepracor Inc. $91.19 (-8.56)(-2.50)(-1.00)(+11.25)
Sepracor develops and commercializes new, patented forms of
existing pharmaceuticals by purging them of nonessential
molecules. The company's products can reduce side effects,
provide new uses, and improve safety, performance, and dosage.
Sepracor focuses its efforts on gastroenterology, neurology,
psychiatry, respiratory care, and urology. The company is also
developing its own new drugs to treat infectious diseases and
conditions of the central nervous system.
SEPR's institutional ownership has increased from 61% a year ago
to 84% in the latest quarter. And Wall Street analysts have made
their adoration of SEPR known. They describe SEPR as an "old
story just coming to fruition" because the company develops
second generation drugs and markets them through the first
generation maker. Throughout May, many analysts have praised
the company. For example, Prudential Securities reiterated its
Strong Buy rating on the stock, and raised its target price to
$150 based upon strong sales of its new drug, Xopenix. DB Alex
Brown endorsed the company by reiterating its Strong Buy rating
based upon the improved outlook for several of SEPR's products
under development. While Wall Street has turned bullish on
SEPR, and the biotech sector in general, analysts realize that
the company faces many hurdles down the road to profitability.
However, in the near-term, we see further upside potential in
the stock. Most significantly, we're looking for the upward
momentum in the biotech sector to carry SEPR higher. While the
NASDAQ, and particularly the tech sector languishes, the biotech
sector has managed to hold onto its gains and show impressive
relative strength. And with the solid base formed last week in
SEPR, we may see the upward momentum return very soon. Similar
to our CIEN play, SEPR traced a head-and-shoulders bottom over
the course of last week's trading. The stock found solid
support at $90 Friday, the location of its right shoulder.
Watch the stock closely next week, view a breakout above $96 as
a bullish sign and consider an entry near that level. We saw an
institution step in late Friday as a block trade of 200 K shares
crossed the tape late in the day, yet another bullish indicator.
A few upcoming events may act as catalysts for SEPR, and further
our cause. In two weeks, SEPR is scheduled to present at the
PaineWebber Life Sciences Conference, and again at the Goldman
Sachs Healthcare Conference a week later. If executives from
SEPR deliver bullish comments, we could see some analysts flex
their muscles and lift the stock.
BUY CALL JUN- 90 ERU-FR OI= 66 at $ 8.50 SL= 6.00
BUY CALL JUN- 95 ERU-FS OI= 77 at $ 6.50 SL= 4.50
BUY CALL JUN-100*ERU-FT OI=251 at $ 4.63 SL= 2.75
BUY CALL JUL-100 ERU-GT OI=279 at $ 8.75 SL= 6.00
BUY CALL OCT-100 ERU-JT OI=130 at $17.00 SL=12.25
Picked on May 7th at $103.25 P/E = N/A
Change since picked -12.06 52-week high=$126.81
Analysts Ratings 5-4-2-0-0 52-week low =$ 27.50
Last earnings 03/00 est=-0.96 actual=-0.76
Next earnings 07-24 est=-0.55 versus=-0.56
Average Daily Volume = 1.09 mln
/charts/charts.asp?symbol=SEPR
********
INTERNET
********
EXDS - Exodus Communications $62.00 (-9.19)
Exodus provides Internet system and network management solutions
for enterprises with mission-critical Internet operations. They
have pioneered the Internet Data Center (IDC) market and is one
of the leading providers of Internet server hosting to the
growing number of companies using the Internet. At present,
Exodus also has twenty Internet Data Centers where clients store
their servers in secure vaults. Clients include CBS Sports,
eBay, Lycos, Yahoo!, MSNBC, and Hewlett-Packard.
Could the inverse of the proverbial theory of what goes up must
come down prove true for EXDS? This is the fundamental question
and something we're betting is going to happen quite soon. Just
recently on March 23rd, EXDS put in a 52 week high of $179.63
only to lose it legs following the market top. There really
hasn't even been much of a bounce; and if you look at a daily
chart you can see the undeviating down trendline. Wednesday's
trading session however gave us a hint that there's a bright
light at the end of the tunnel. EXDS snapped back off light
support at $52.50 with the rallying market and followed through
with a 16.8% spike to $67.75 on Thursday. The volume was
exceptional both days at nearly twice the norm and good news was
also in the air. The American Petroleum Exchange, a business-
to-business trading exchange for the refined petroleum industry,
announced it's teaming up with Exodus to provide a secure data
center for transactions and data hosting. From a technical
viewpoint, the Stochastic took direction from the neutral zero
band and is now pointing up, up, up and EXDS is poised to take a
leap off the 5-dma ($62.30) indicator. EXDS is bumping into a
wall of opposition at $69 and the 10-dma line ($69.34).
Therefore, it'd be more prudent to wait for moves through $70
before opening new plays. Although, the more aggressive may
want to use a solid bounce off the current share price to get an
early jump on the impending momentum. Remember EXDS can take
you for a wild ride and is not for the more cautious traders. On
a reversal this stock can easily take a 10 to 15 point dive! So
put as many chips in the corner and plan your strategy carefully.
Trailing stops may be a good idea if you're willing to take the
chance of not getting stopped out on a wide intraday swing.
Exodus announced plans to expand its data centers to 36 from 20
by the end of the year to keep up with demand for its services.
According to Chief Executive, Ellen Hancock, the California-
based company plans on adding data centers in Asia and Europe
and will expand capacity at some of its current sites too.
BUY CALL JUN-60*DUB-FL OI=2964 at $ 7.63 SL= 5.25
BUY CALL JUN-65 DUB-FM OI= 668 at $ 5.25 SL= 3.25
BUY CALL JUN-70 DUB-FN OI=1113 at $ 3.50 SL= 1.75
BUY CALL JUL-65 DUB-GM OI= 137 at $10.50 SL= 7.50
BUY CALL SEP-70 DUB-IN OI= 321 at $13.13 SL=10.50
Picked on May 28th at $62.00 P/E = N/A
Change since picked +0.00 52-week high=$179.63
Analysts Ratings 22-10-0-0-0 52-week low =$ 16.72
Last earnings 03/00 est=-0.26 actual=-0.23
Next earnings 07-21 est=-0.24 versus=-0.14
Average Daily Volume = 7.63 mln
/charts/charts.asp?symbol=EXDS
****
YHOO - Yahoo! Inc. $112.06 (-8.25)
Yahoo! Inc. is a global Internet communications, commerce and
media company that offers a comprehensive branded network of
services to more than 145 million individuals each month
worldwide. As the first online navigational guide to the Web,
www.yahoo.com is the leading guide in terms of traffic,
advertising, household and business user reach, and is one of
the most recognized brands associated with the Internet. The
company also provides online business services designed to
enhance the Web presence of Yahoo!'s clients, including audio
and video streaming, store hosting and management, and Web
site tools and services. The company's global Web network
includes 22 local World properties outside the United States.
Could it be that this sleeping giant is about to wake up?.
It's certainly possible and that's why we're welcoming this
favorite back to our little family. For the ardent tech
investor, its hard to believe that just two months ago Yahoo
was trading over $200 a share, helping lead the NASDAQ to an
all-time high. For others, what's even harder to comprehend
is the decline from a pre-split high of over $500 in early
January. No sector has been hit harder than the Internets
during the correction. Investors' sudden renewed interest
in fundamentals, valuation and "common sense investing" has
taken a toll on Yahoo and the dotcom sector. Interestingly,
little has really changed for YHOO, and a few of the Internet
stalwarts. Actually, they have hit the mark with better than
expected earnings and sales, which many other companies can't
say. So what makes YHOO so special now? Several things. First,
we are just over a month away from the next round of earnings
reports and our new play could begin to attract attention from
traders expecting a move up into earnings. Technically, YHOO is
approaching oversold territory according to several different
indicators. Friday's 2.5% decline shows the Internet company
definitely in an oversold condition when checking intraday charts.
YHOO is sitting near a support level last visited in mid April,
and in early December, prior to exploding to its all time high in
early January. Until the current "correction" is over we aren't
expecting any sustainable gains to come from YHOO or the Internet
Sector. However, analysts are quick to point out that at current
levels, the Internet giant could be attractive to short and
long-term investors alike. If investors return from the holiday
weekend with buy orders in hand, we would look to establish long
positions on moves higher. For more conservative types a move
through $116 supported by strong volume, may be just what the
doctor ordered. If traders returnin a negative mood, bounces off
the $107-108 could also provide attractive entry point. Again,
confirm any bounce with volume prior to placing an order.
The company held its annual stockholders meeting on May 12th.
On the agenda was a request to increase the number of authorized
shares from 900 million to 5 billion. The company's last split
came on February 14th. Although the price of their stock has
certainly changed, so have the market conditions and investor
sentiment. With earnings scheduled to be reported on July 11th,
some are anticipating a split announcement may be in the works
as well.
BUY CALL JUN-110 YMM-FB OI= 574 at $ 9.50 SL= 6.50
BUY CALL JUN-115*YMM-FC OI=1691 at $ 7.00 SL= 5.00
BUY CALL JUN-120 YMM-FD OI=7490 at $ 5.13 SL= 3.00
BUY CALL JUL-115 YMM-GC OI= 407 at $13.38 SL=10.00
BUY CALL OCT-120 YMM-JD OI= 307 at $18.75 SL=13.50
SELL PUT JUN-110 YMM-RB OI=7169 at $ 6.50 SL= 9.50
(See risks of selling puts in play legend)
Picked on May 28th at $112.06 PE = 516
Change since picked +0.00 52 week high=$250.06
Analysts Ratings 16-13-3-0-0 52 week low =$ 55.00
Last earnings 04/00 est= 0.09 actual= 0.10
Next earnings 07-11 est= 0.10 versus= 0.05
Average daily volume = 9.84 mln
/charts/charts.asp?symbol=YHOO
*********
SOFTWARE
*********
CHKP - Check Point Software $162.50 (+1.13)
Check Point Software Technologies is a worldwide leader in
securing the Internet. The company's Secure Virtual Network
(SVN) architecture provides the infrastructure that enables
secure and reliable Internet communications. SVN secures
business-to-business(B2B) communications between networks,
systems, applications and users across the Internet, Intranets
and extranets. Check Point's Open Platform for Security (OPSEC)
provides the framework for integration and interoperability
with "best-of-breed" solutions from over 200 leading industry
partners.
Our play in CHKP got off to a reasonable start on Friday with
a small gain. Considering the fact that most of the traders
that stuck around for the session showed little interest in
buying or selling, we'll take what we can get. A check of the
volume the past month has shown that while Check Point has
definitely been range bound, the up days have had far better
participation than the down days. Since early April most of the
action has taken place between $150 and $190, which some have
termed a "day traders dream." We are beginning to see higher
lows as the formation has begin to tighten, which could be
considered a plus for our play. CHKP has two major influences
tugging at each end. First, the negative tone in the broad
markets has kept a lid on any rallies. As with many of the
tech stocks, rallies are met by sellers, trying to recoup earlier
losses. The other side of the coin has those that believe
CHKP is a great buy at the lower end of the range, supported
by the recent rash of cyber attacks. Let's take that argument
a step further. To say the popularity of the Internet has
exploded in recent years is a gross understatement. But, in
looking at DSL connections to the Internet, Matt Davis, a senior
analyst at the Yankee Group recently estimated the number of DSL
subscribers to grow from 100,000 in 1999 to over 9.5 million
in 2004. Granted this kind of information may be geared more for
the long-term, buy-and-hold investor. However, it is this kind
of speculation that keeps Check Point and other security companies
in the spotlight. So how do we proceed our play? For CHKP to
sustain a breakout move to the upside, we would like to see a close
over $180, accompanied by strong volume for added confidence. If
the bears return, bounces off $155 or $145 may provide a good entry
point for short-term plays.
The explosive growth of "always on" broadband connections has
expanded the scope of business for Check Point. The need for
security is no longer an option, it's a must, according to
CHKP's Vice President of business development and product
management.
BUY CALL JUN-155 YKE-FK OI=403 at $17.13 SL=12.50
BUY CALL JUN-160 YKE-FL OI=104 at $14.25 SL=10.25
BUY CALL JUN-170*YKE-FN OI=274 at $ 9.25 SL= 6.75
BUY CALL JUL-180 YKE-GP OI=100 at $18.00 SL=14.00
BUY CALL OCT-180 YKE-JP OI=142 at $33.75 SL=26.25
SELL PUT JUN-160 YKE-RL OI= 96 at $10.63 SL=14.00
(See risks of selling puts in play legend)
Picked on May 25th at $160.25 PE = 140
Change since picked +2.25 52 week high=$295.00
Analysts Ratings 12-3-0-0-0 52 week low =$ 21.34
Last earnings 04/00 est= 0.35 actual= 0.40
Next earnings 07-12 est= 0.42 versus= 0.26
Average daily volume = 1.68 mln
/charts/charts.asp?symbol=CHKP
*******
TELECOM
*******
SCMR - Sycamore Networks $76.50 (-4.44)
Sycamore Networks develops and markets intelligent optical
networking products that transport voice and data traffic over
wavelengths of light. The Company combines significant
experience in data networking with expertise in optics to develop
intelligent optical networking solutions for network service
providers. Sycamore's products are based on a common software
foundation, enabling concentration on the delivery of services
and end-to-end optical networking. Sycamore's products and
product plans include optical transport, access and switching
systems and end-to-end optical network management solutions.
That was fast! Recall we dropped SCMR from the play list on May
16th, thanks to earnings on May 18th. Way to go, SCMR! It was a
blowout at $0.05 vs. estimates of just $0.02. While revenue
increased sequentially by 104% to over $59 mln, true to form,
that didn't stop SCMR from digging a post-earnings hole to crawl
into. Now, it's back to that ascending wedge pattern of higher
lows moving toward resistance of $90. First, it needs to get
through mild resistance at $80. Despite an intraday low of $66 on
Thursday, most recent support is at $70. If you can read tea
leaves, you could also make a case for $72.50. Another technical
plus is that SCMR finished a smidgen over its 5-dma of $75.01 for
the first time since reporting earnings. Going forward,
aggressive traders may want to consider buying any dip under the
5-dma. However, we think target shooting in the $70 to $72.50
range will yield the best entry. With SDLI also blowing away
earnings estimates last week, we know that the optical component
business is still brisk, and thus customer demand for the finished
networking products is too. It doesn't hurt either that Fidelity
Magellan disclosed that SCMR was one of three networkers responsible
for its profits last quarter.
Analysts' upgrades will help create the buzz going forward. Wit
Soundview reiterated their Strong Buy rating and upped their
price target to $150 on May 19th from $130. DLJ started coverage
with a Buy rating on May 11 and a price target of $95.
BUY CALL JUN-70*SMZ-FN OI=199 at $12.13 SL= 9.00
BUY CALL JUN-75 SMZ-FO OI=406 at $ 9.50 SL= 6.50
BUY CALL JUN-80 SMZ-FP OI=555 at $ 7.13 SL= 5.00
BUY CALL JUL-75 SMZ-GO OI= 12 at $13.75 SL=10.25
BUY CALL SEP-80 SMZ-IP OI=445 at $16.38 SL=11.75
SELL PUT JUN-60 SMZ-RL OI=228 at $ 2.31 SL= 3.75
(See risks of selling puts in play legend)
Picked on May 28th at $76.50 P/E = 78
Change since picked +0.00 52-week high=$199.50
Analysts Ratings 7-4-0-0-0 52-week low =$ 47.25
Last earnings 05/00 est= 0.02 actual= 0.05 surprise = 150%
Next earnings 08-17 est= 0.06 versus= N/A
Average Daily Volume = 3.6 mln
/charts/charts.asp?symbol=SCMR
****
RBAK - Redback Networks $72.06 (+9.13)
Founded in 1996 and headquartered in Sunnyvale, Calif., Redback
Networks is a leading provider of advanced networking solutions
that enable carriers, cable operators, and service providers to
rapidly deploy broadband access and services. The company's
market-leading Subscriber Management Systems (SMSs) connect and
manage large numbers of subscribers using any of the major
broadband access technologies such as Digital Subscriber Line
(DSL), cable, and wireless. To deliver integrated transport
solutions for metropolitan optical networks, Redback's SmartEdge
multi-service platforms leverage powerful advances in
application-specific integrated circuit (ASIC), IP, and optical
technology. With this product portfolio, Redback Networks is the
first equipment supplier focused exclusively on developing
integrated solutions for the New Access Network.
Another popular networker makes it back on the play list this
week. RBAK too was named as being partially responsible for
Fidelity Magellan's most recent results. But, the real story here
is the technical picture where we once again (you guessed it)
have an ascending wedge. The lows keep getting higher ($55, $57,
$60 and $67). Friday's blast off from $68 to $72 in the last
hour of trade on substantially increased volume was the kicker.
About 150k shares traded then on an otherwise sleepy Friday.
Somebody is interested and we expect the trend to continue next
week. Resistance at the top of the wedge is about $74.
Conservative traders can play it safe by waiting for the breakout
over $74 with strong volume. But we think target shooting at
support to match your risk tolerance can get you a better entry.
We favor a pullback to $67. However, if you can stomach a tad
more risk, there is mild intraday support at $70.
According to briefing.com, RBAK announced an agreement with
PrimusDSL, the digital subscriber line (DSL) business unit in the
United States of PRIMUS Telecommunications to expand its existing
relationship and provide its Subscriber Management System support
PrimusDSL's plans to expand in 12 markets nationwide by the end
of 2000. Similar deals with ArrayComm were also struck to
support their wireless products.
BUY CALL JUN-65*BUK-FM OI=2540 at $12.50 SL= 9.50
BUY CALL JUN-70 BUK-FN OI= 292 at $ 9.75 SL= 6.75
BUY CALL JUN-75 BUK-FO OI= 347 at $ 7.50 SL= 5.25
BUY CALL JUL-75 BUK-GO OI= 99 at $12.00 SL= 9.00
BUY CALL SEP-80 BUK-JP OI= 114 at $ 6.50 SL= 4.50
SELL PUT JUN-60 BUK-RL OI=1139 at $ 2.50 SL= 4.00
(See risks of selling puts in play legend)
Picked on May 18th at $72.06 P/E = N/A
Change since picked +0.00 52-week high=$198.50
Analysts Ratings 4-2-1-0-0 52-week low =$ 16.31
Last earnings 04/00 est= 0.03 actual= 0.05 surprise= 33%
Next earnings 07-12 est=-0.06 versus=-0.05
Average Daily Volume = 2.5 mln
/charts/charts.asp?symbol=RBAK
****
SDLI - Spectra Diode Laboratories Inc. $197.75 (+1.75)(+22.00)
SDL's products power the transmission of data, voice and
Internet information over fiber optic networks to meet the needs
of telecommunications, DWDM, cable television and satellite
communications applications. They enable customers to meet the
bandwidth needs of increasing Internet, data, video and voice
traffic by expanding their fiber optic communications networks
more quickly and efficiently than would be possible using
conventional electronic and optical technologies. SDL's optical
products also serve a variety of non- communications applications,
including materials processing and printing.
We said Thursday, heading into a holiday weekend, many analysts
would view whatever happened Friday as a "non-event", due to the
lack of traders. Well, it's amazing what a little thing like an
earnings warning or an upbeat earnings forecast can do to the
price of a company's stock. That's exactly what occurred for our
play in SDLI. Before the open, the company said it expects to
beat Wall Street estimates by at least 24%. Analysts had
expected the fiber-optics products maker to earn about $0.25 a
share for the fiscal second quarter. Company officials said
profits were propelled by strong bookings and the purchase of
Photonic Integration Research Inc. The Photonic purchase is a
cash and stock deal said to be worth $1.8 billion. SDL's Chief
Executive Don Scifres said the acquisition of Photonic, due to
close next month, will add $5 million in sales this quarter, and
SDL's broader line of products is drawing in more big customers.
Jeff Lipton, Chase H&Q analyst said "the acquisitions are going
well, but most of the upside here is due to strength in their
main business." On Friday, our play gapped up over $9 and after
an initial pullback, climbed all the way to resistance near $200
before settling for an 18% gain. The volume, especially in the
last half-hour of trading, was impressive for a day before a
holiday. Over 1.6 millions shares changed hands the last thirty
minutes of the session as SDLI climbed to its high at $199.00.
How do we play this one? Support now is found at $185 and $180,
with the 10-dma sitting at $192.95. With the strength of Friday's
move, we would expect the momentum to carry through. Overhead
resistance comes into play near $216. We would be careful about
trying to jump in during the first hour on Tuesday, as whatever
way SDLI moves during that time frame, is likely to be
exaggerated.
The company is challenging JDS Uniphase Corp, the biggest maker
of fiber-optic parts, by making acquisitions like the purchase
of Photonic. According to SDL's CEO, "It's going to be a great
second half of the year, in terms of earnings...we're seeing
really good demand." At the company's stockholders meeting on
May 18th, shareholders were asked to vote for an increase in the
number of authorized shares from 141 million to 281 million.
BUY CALL JUN-190*QZL-FR OI=439 at $23.38 SL=17.00
BUY CALL JUN-200 QZL-FT OI=753 at $19.00 SL=13.75
BUY CALL JUN-210 QZL-FB OI=700 at $15.13 SL=11.00
BUY CALL JUL-190 QZL-GR OI=424 at $37.38 SL=29.00
BUY CALL SEP-205 QZL-IT OI=197 at $48.00 SL=37.50
SELL PUT JUN-195 QZL-RS OI= 28 at $17.88 SL=24.50
(See risks of selling puts in play legend)
Picked on May 21st at $196.00 PE = 394
Change since picked +1.75 52 week high=$244.75
Analysts Ratings 14-8-0-0-0 52 week low =$ 21.63
Last earnings 04/00 est= 0.16 actual= 0.22
Next earnings 07-19 est= 0.23 versus= 0.09
Average daily volume = 2.89 mln
/charts/charts.asp?symbol=SDLI
****
CIEN - Ciena Corp $99.69 (-16.81)
Ciena makes multiplexing systems that increase the capacity of
long-distance fiber-optic telecommunications networks. The
company's systems transmit signals simultaneously over the same
circuit. Customers such as Sprint, Bell Atlantic, and MCI
Worldcom, use its lines for long-distance optical transport and
for shorter distances. The company is expanding its product and
geographic breadth as it transforms itself from niche market
specialist to optical networking supplier.
With a P/E ratio somewhere north of 500, growth doesn't come
cheap for shareholders of CIEN. But growing is exactly what CIEN
is doing. Analysts figure that the company will grow its bottom
line by an amazing 1700% this year. Analysts concede that CIEN
is in a field with giant competitors such as LU and NT. However,
at the same time, they confess that CIEN's products have
tremendous potential and the company has room to grow,
considering its relatively small market cap of $14 bln. And with
the announcement that China will be allowed into the WTO late
last week, CIEN's boundaries for growth further expanded. As we
described in Thursday's write-up, CIEN will supply optical
networking equipment to China as the country expands its ailing
wireless and wireline networks. Despite the explosive growth of
CIEN's bottom line, the stock has been on a roller coaster ride
over the past two months. But, through the course of last week's
trading, CIEN formed a bullish chart pattern. Friday's trading
completed a picturesque head-and-shoulders bottom formation, with
the $100 level providing the right shoulder. With the strong
technical position of CIEN, and the developments in China
hashed-over during the three-day weekend, we could get an
exciting rally next week, provided the NASDAQ cooperates. Given
the bottom head-and-shoulders formation, an aggressive trader
might play a bounce from current levels. On the other hand, a
solid move above the right shoulder at $110 could lead to a
strong and swift rally as CIEN has very little resistance above
that level. Watch CIEN closely early next week for a break-away
from its right shoulder. Be cautious though, if CIEN falls below
near-term support of $95 it might not find bottom again until
$80.
CIEN's popularity among Wall Street pros is growing by the week.
Last Thursday, DB Alex Brown initiated coverage on the stock with
a Buy rating. Analysts said that CIEN represents one of the best
investments in the optical sector. And early last week, DLJ
reiterated CIEN as a top pick, setting a target price of $190.
BUY CALL JUN- 95 EUQ-FS OI=260 at $12.88 SL= 9.75
BUY CALL JUN-100 EUQ-FT OI=880 at $10.25 SL= 7.25
BUY CALL JUN-105*EUQ-FA OI=449 at $ 8.25 SL= 5.75
BUY CALL JUL-105 EUQ-GA OI=162 at $15.00 SL=11.00
BUY CALL OCT-110 EUQ-JB OI=332 at $21.63 SL=15.00
Picked on May 25th at $104.50 P/E = 586
Change since picked -4.81 52-week high=$189.00
Analysts Ratings 11-8-1-0-0 52-week low =$ 26.81
Last earnings 04/00 est=0.10 actual=0.12
Next earnings 08-17 est=0.16 versus=0.01
Average Daily Volume = 6.45 mln
/charts/charts.asp?symbol=CIEN
*********************************
CALLS - CONTINUED IN SECTION FOUR
*********************************
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*******************************
SEE DISCLAIMER IN SECTION ONE

The Option Investor Newsletter 5-28-2000
Sunday 4 of 5
*****************
CALLS - CONTINUED
*****************
****
MISC
****
ITWO - I2 Technologies $95.50 (-2.75)
I2's RHYTHM supply chain management software helps manufacturers
plan and schedule production and related operations such as raw
materials procurement and product delivery. Companies that use
RHYTHM include: 3M, Dell, Ford, and Motorola. Maintenance,
training, and other services account for more than a third of
sales. I2 is using acquisitions of complementary technologies
and companies to position itself as a leader in the market for
Internet-based production process applications.
ITWO has found its rhythm, despite the bust in the B-2-B sector.
While Wall Street argues over what B-2-B business model will win,
and companies in the sector struggle, ITWO is positioning itself
to emerge as a market leader. The company has been around for
quite awhile, and has operated profitably for over a year now.
And Wall Street expects ITWO to grow earnings by 43% annually
over the next five years. As the Internet grows, companies are
using the Web to decrease costs and increase efficiency. That's
where ITWO comes in. The company is an outsourcing concern that
provides services to a broad spectrum of major manufacturers.
And ITWO's signature software known as RHYTHM has emerged as the
industry standard. ITWO's market dominance is seen through the
array of contracts it continues to line up. Most recently
Sunbeam (SOC) licensed ITWO's suite of transportation solutions
to manage and optimize its transportation resources. While
ITWO's long-term prospects remain rosy, we're more concerned with
the short-term performance of the stock. The fundamentals are
in place, and now the chart is showing profit potential. The
stock has been range bound for the past two months between $80 -
120. Last Wednesday marked the third time ITWO retested support
at $80. The stock since rebounded, extending its gains Friday
despite the overall weak market. ITWO will face resistance at
$100 and a bit of congestion at $105, but after that it's pretty
clear to $120. Consider an entry at current levels if you don't
mind more risk, otherwise, target shoot for entry points as ITWO
clears its various resistance levels. If you want to minimize
risk, wait for ITWO to clear resistance at $105 as confirmation
that its relative strength is here to stay.
Despite the bleak volume going into the holiday weekend and the
generally weak market conditions, the software and e-services
sector held up relatively well. Stocks such as VRTS, BMCS, and
of course ITWO all had substantial gains Friday. Pay close
attention to the direction in the sector and don't forget to set
your stops!
BUY CALL JUN- 90 QYJ-FR OI=544 at $14.13 SL=10.50
BUY CALL JUN- 95 QYJ-FS OI=378 at $11.00 SL= 8.25
BUY CALL JUN-100*QYJ-FT OI=487 at $ 9.00 SL= 6.25
BUY CALL JUL-100 QYJ-GT OI= 34 at $16.50 SL=11.75
BUY CALL AUG-100 QYJ-HT OI=195 at $19.75 SL=14.00
Picked on May 28th at $95.50 P/E = 429
Change since picked 0.00 52-week high=$223.50
Analysts Ratings 8-17-2-0-0 52-week low =$ 13.06
Last earnings 03/00 est=0.05 actual=0.07
Next earnings 07-20 est=0.08 versus=0.05
Average Daily Volume = 4.05 mln
/charts/charts.asp?symbol=ITWO
*****
LEAPS
*****
by Mark Phillips
leaps@OptionInvestor.com
Are we there yet? Those of you with small children are familiar
with that question - one I seem to be asking myself on a regular
basis lately. The markets continue to drift lower, as the fear
of more interest rate hikes keeps the buyers at bay. The VIX is
mirroring the major indices as its range continues to narrow.
It hasn't been below 25 since early April, and the highs are
getting lower, as it becomes less willing to move above 30.
The directionless and apathetic markets on Friday dragged the
VIX down to close out the week at 27.88, and with the markets
still trading at very low levels, the bargain-hunting should
soon begin in earnest. If you are a LEAPS investor and you have
cash in hand, you are likely salivating at the prospects of some
of the tasty entry points we are being served. Look at the
number of plays that are at or near their 200-dma or a major
level of support, and you can see what I am so excited about.
CSCO finally made it as the L.O.W. and QCOM is trading at less
than a third of its January highs. Some of the big winners in
the past 6 months (EMC, CY, NT, SUNW) are all trading near their
200-dmas. They had great runs and have pulled back with the
rest of the market. This is why I started talking about taking
profits on winning plays back in early April. The profit-taking
was bound to happen (although it came a bit earlier than we
expected), and our primary goal is to make and KEEP our profits.
Whether you set profit targets and close a position when it is
met or use trailing stop losses, money management is the one
skill that will keep your account growing and keep you in the
game. That way, when the pullback does take place, we are
poised to take the cash sitting in our accounts and buy LEAPS again
when the entry points appear. One note of clarification; our
plays are intended to be used similar to those found in the Call
and Put section of the newsletter. We list the necessary
conditions to provide a good entry point, and if those criteria
are not met, you don't want to be in that play. Simply jumping
into the newest LEAP plays first thing Monday morning is a quick
way to drain your account dry. Pick the plays that you like,
and then decide where you would be happy getting an entry. If
the stock comes to you and the play still looks good, then pull
the trigger. But don't chase entry points in this market just
because you are afraid it will get away from you. Patience is
being rewarded in this market, so follow Jim's advice, "Don't
buy too soon".
Administrative Note: I told you last week what the situation
was with respect to the 2001 and 2003 LEAPS and the complicated
way in which the CBOE has managed the addition of 2003 strikes
and the conversion of 2001 strikes to regular call options.
Unfortunately, the situation has changed very little in the
past week; there are still LEAP symbols for 2001 on many of our
plays (NT, CY, NSM, CMGI, and VSTR), and the picture isn't much
better for the 2003 LEAPS. There are a few stocks that have
listed LEAPS for the 2003 expiration cycle, but none have prices
listed and there is no open interest yet. I'm still trying to
get an answer from CBOE when the situation will be rectified and
will inform you as soon as I know anything more. Stay tuned...
Current Plays
SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN
EMC 11/07/99 JAN-2001 $ 80 EMB-AP $15.38 $41.50 169.83%
JAN-2002 $ 90 WUE-AR $19.00 $57.25 201.32%
IBM 11/07/99 JAN-2001 $100 IBM-AT $13.63 $19.63 44.02%
JAN-2002 $110 WIB-AB $16.50 $25.75 56.06%
CSCO 11/14/99 JAN-2001 $ 40 CYQ-AH $ 9.56 $20.75 117.05%
JAN-2002 $ 45 WIV-AI $11.00 $24.13 119.36%
NT 11/28/99 JAN-2001 $37.5 ZOO-AU $11.13 $20.38 83.11%
JAN-2002 $37.5 WNT-AU $15.13 $25.88 71.05%
TXN 12/12/99 JAN-2001 $ 55 TNZ-AK $11.13 $20.38 83.11%
JAN-2002 $ 60 WGZ-AL $14.25 $25.13 76.35%
SUNW 12/19/99 JAN-2001 $ 80 SUX-AP $17.63 $13.38 -24.41%
JAN-2002 $ 90 WJX-AR $22.00 $20.38 - 7.36%
CY 01/16/00 JAN-2001 $ 40 ZSY-AH $ 9.13 $11.75 28.70%
JAN-2002 $ 40 WSY-AH $12.63 $18.25 44.50%
ERICY 01/30/00 JAN-2001 $16.3 RQC-AO $ 4.94 $ 5.13 3.85%
JAN-2002 $16.3 WRY-AO $ 6.75 $ 7.38 9.33%
NSM 02/27/00 JAN-2001 $ 70 ZUN-AN $18.50 $ 8.38 -54.70%
JAN-2002 $ 70 WUN-AN $24.25 $16.00 -34.02%
AOL 03/12/00 JAN-2001 $ 60 AOO-AL $14.00 $ 5.88 -58.00%
JAN-2002 $ 65 WAN-AM $18.63 $10.88 -41.60%
AXP 03/12/00 JAN-2001 $43.3 AXP-AP $ 7.25 $11.13 53.52%
JAN-2002 $46.6 WXP-AQ $ 9.33 $13.75 47.37%
WM 03/19/00 JAN-2001 $ 25 WM -AE $ 5.00 $ 6.50 30.00%
JAN-2002 $ 30 WWI-AF $ 5.38 $ 6.88 27.88%
QCOM 03/26/00 JAN-2001 $150 AUA-AJ $39.25 $ 3.75 -90.45%
JAN-2002 $160 XQO-AL $52.88 $ 9.88 -81.32%
AMD 04/16/00 JAN-2001 $ 70 AMD-AN $17.50 $22.38 27.89%
JAN-2002 $ 70 WVV-AN $26.00 $32.13 23.58%
CMGI 04/16/00 JAN-2001 $ 50 ZB -AJ $21.50 $12.88 -40.09%
JAN-2002 $ 55 WCK-AK $27.75 $19.50 -29.73%
JDSU 04/16/00 JAN-2001 $ 80 XJU-AP $27.50 $24.63 -10.44%
JAN-2002 $ 80 YJU-AP $39.63 $38.00 - 4.11%
VSTR 04/16/00 JAN-2001 $ 90 ZTB-AR $23.88 $33.38 39.78%
JAN-2002 $ 90 WWP-AR $35.00 $47.13 34.66%
YHOO 4/30/00 JAN-2001 $140 YMM-AH $32.13 $18.88 -41.24%
JAN-2002 $140 WYZ-AH $46.38 $34.25 -26.15%
MOT 5/14/00 JAN-2001 $100 MOT-AT $19.75 $16.00 -18.99%
JAN-2002 $110 WMA-AB $28.63 $25.38 -11.35%
NOK 5/21/00 JAN-2001 $ 50 NZY-AJ $10.25 $ 9.25 - 9.76%
JAN-2002 $ 50 IWX-AJ $17.25 $15.75 - 8.70%
To review the play description on any of our current plays,
go to the LEAPS section for the date the play was added.
Option Selection: Notice that many of our LEAP plays have moved
considerably since initially being picked. The listed options
may therefore be deep in the money and very expensive. When
entering a new position, look to buy LEAPS according to your
suitability level, but note that we typically initiate strikes
that are slightly out of the money from the stock's current
price.
Leap of the Week
CSCO - Cisco systems $54.94
Oh how the mighty have fallen. After its brief moment in the
limelight in late March, where the company reached the coveted
position of the company with the largest market capitalization,
CSCO has been brought back to earth with the rest of the NASDAQ.
Valuation concerns from various analysts and continued weakness
in the tech sector dropped the stock through support at $60,
and there was widespread concern about the $50 support level
(just below the 200-dma). Fortunately this level held and there
was heavy institutional buying last week as the stock traded
nearly 100 million shares on Wednesday, more than double the
daily average. The company's revenue growth continues to
increase and analysts are watching the stock closely as it will
likely be a good indicator for the whole tech sector. Consider
repeated bounces near the $50 support level to be good entry
points, but keep your eye on the volume; it will be absolutely
necessary to confirm the strength of any upward move.
BUY CALL JAN-2001 $60.00 CWY-AL at $ 9.75
BUY LEAP JAN-2002 $60.00 WIV-AL at $16.88
BUY LEAP JAN-2003 $65.00 ------ at $--.-- **Wait for Strike**
/charts/charts.asp?symbol=CSCO
New Plays
XLNX - Xilinx, Inc. $66.88
As the tech sector has fallen down around us, it has become
increasingly clear that relative strength is king. The company
is a leading supplier of field-programmable gate arrays and
other complex programmable logic devices that customers can
customize to perform specific functions. With its products
used in a wide variety of applications in the
telecommunications, data processing, medical instrumentation,
military and networking markets, XLNX counts Cisco, Hewlett
Packard, IBM and Nortel among its customers. XLNX is one of
the few Semiconductor stocks that has refused to bow down to
touch the 200-dma. Industry leaders like TXN, CY, NSM (all
current plays) have all either tested or violated theirs, while
XLNX has kept a healthy distance from its 200-dma. Since the
carnage of mid-April, the stock has posted consistently higher
lows to accompany the consistently lower highs. This is
creating an attractive pennant formation that should provide
a breakout in the next 2-3 weeks. Support is formidable near
$56-57, with near-term support appearing near $60. Volume is
dancing around the daily average with stronger volume
accompanying up days. Resistance has settled in near $70,
and move through this level on strong volume would provide
an acceptable entry. With the NASDAQ continuing to be weak,
a more attractive entry point can likely be had as XLNX dips
to test support near $60. Just make sure it is a successful
test and the rebound is confirmed by increased buying interest.
BUY CALL JAN-2001 $70.00 ZIZ-AN at $14.63
BUY LEAP JAN-2002 $70.00 WXJ-AN at $23.38
BUY LEAP JAN-2003 $75.00 ------ at $--.-- **Wait for Strike**
/charts/charts.asp?symbol=XLNX
---
HD - Home Depot $46.88
There's nothing like an earnings shortfall in a weak market to
tank an entire sector, and bring strong stocks down to
attractive levels. Interest rate fears and general market
weakness had served to bring HD down to support at $50, and then
Costco missed earnings on May 24th, and the effect was felt
throughout the Retail sector. Even HD, the leading home
improvement retailer, felt the brunt of the sell-off that
ensued, dropping the share price as low as $44 before more
rational thinking prevailed. The stock attempted to recover
late in the week, but was thwarted by an earnings warning from
Office Depot, which tanked the sector again. So if the sector
outlook is gloomy, why are we picking it as a new play? Simply
put, HD is a great company that continues to grow revenues by
25% year-over-year, and has met or exceeded expectations for
the past 14 quarters. The stock has performed well, and
will likely continue to do so. With the guilt-by-association
pullback last week, HD is now trading very near support at
$43-45, followed by very strong support at $40. The market
still has to sort out its near-term direction and this
indecision by investors could provide some very attractive
entry points on HD. Look to open new positions on a bounce
from support as long as it is accompanied by increasing volume.
BUY CALL JAN-2001 $50.00 ZHD-AJ at $ 6.25
BUY LEAP JAN-2002 $50.00 WHD-AJ at $11.38
BUY LEAP JAN-2003 $55.00 ------ at $--.-- **Wait for Strike**
/charts/charts.asp?symbol=HD
Drops
None
*****************************************************************
PUT PLAYS
*****************************************************************
Put plays can be very profitable but have a larger risk than call
plays. When a stock is falling the entire investment community
(except the shorts) is hoping it will reverse and start back up.
The company management is also doing everything they can to shore
up their stock price. The company issues press releases, brokers
talk it up, analysts try to put a positive spin on everything.
Then of course there is the death knell, the "buy recommendation"
simply because the price has dropped to some level that analysts
feel attractive again. Buyers who like the stock wait until it
appears a bottom has been reached and then jump on it in a feeding
frenzy. They may already have a large position and are averaging
down. Many factors can stop a free falling stock in mid drop.
****
ANAD - Anadigics Inc. $27.81 (-16.44)(-14.00)
Anadigics produces radio-frequency (RF) integrated circuits that
allow more functions on a single circuit. The company's products
are used to transmit signals in a variety of high-volume
communications applications, including wireless and fiber-optic
telecommunications, cable television, and satellite TV systems.
The company sells direct to customers such as Ericsson, Motorola,
and Palm. Most of its sales come from customers outside North
America.
Rising interest rates, a stumbling currency, and slowing demand
from a major customer bodes poorly for a weak tech stock. Faced
with a harsh environment for highly valued tech stocks, ANAD's
problems worsened two weeks ago. The company's largest customer,
ERICY, told analysts that a slowdown in their handset business
will result in fewer orders for RF components. The announcement
sent ANAD plunging past support levels and into the mire.
Institutions ran for the exits as volume swelled in the stock.
ANAD had four days last week when traders exchanged more than 2
mln shares, versus an ADV of 768 K. Like ERICY, many of ANAD's
customers are European concerns. As the EURO erodes in value,
ANAD's customers have less buying power. So it goes, customers
buying fewer products equates to less revenue for ANAD. Also, a
quick glance through ANAD's most recent 10Q reveals that the
company is expecting stiff competition in the fiber optic arena.
ANAD has to cope with slowing demand for the company's integrated
circuits. ANAD executives stated that an increase in competition
will result in increased pricing pressure, leading to lower
revenues. You may have noticed that ANAD edged higher Friday.
The gains Friday can be linked to the positive news spilling from
ANAD competitor, SDLI. While business is booming for SDLI, it's
a different story for ANAD. There are two possible ways to gain
entry into the play. First, if the institutions return next
week, watch for ANAD to fall below $25 for a solid entry point.
If ANAD extends its gains from here, and you're willing to take
more risk, consider an entry if the stock bumps against
resistance at $30. If you choose the latter, make sure to wait
for the downward momentum to return before entering the play.
BUY PUT JUN-35 DQA-RG OI= 1 at $9.38 SL=6.50
BUY PUT JUN-30*DQA-RF OI=11 at $5.75 SL=3.75
BUY PUT JUN-25 DQA-RE OI=30 at $2.94 SL=1.50
Average Daily Volume = 768 K
/charts/charts.asp?symbol=ANAD
****
EXTR - Extreme Networks $44.06 (-9.31)
Extreme Networks is engaged in the design, development,
manufacture and sale of high performance networking products
based on Gigabit Ethernet technology. The company's next-
generation (Layer 3) switches transmit more information faster,
and enable enterprises such as network service providers and
content providers to migrate from older networks to current
technologies. The company's Summit and BlackDiamond switches
share a common hardware, software, and management architecture
that facilitates a relatively short product design and
development cycle, reducing the time-to-market for new products
and features.
The recent market decline has been tough on EXTR, and the
outlook is still grim. Although the stock has now given up
more than 60% of its price from the March high of $121.38, the
company has given the Street some pretty bad news. Revenue
growth has slowed each quarter since the company went public
and the May 16th quarterly report was not encouraging. Citing
competitive pricing pressure, promotional pricing and rapid
technological change, management has warned the Street that
they expect to see rapid erosion of average selling prices,
which will inevitably affect gross margins. Investors might
have overlooked this fact in last year's euphoric market, but
the recent correction has humbled many companies that have
failed to keep up with investors' expectations. As evidence
that this news was not well received, after the report became
public, EXTR proceeded to drop from $62 to 42.38 in a little
over a week. This decline came on strong volume and dropped
the stock right through support at $51. The price is being
pressured by the 5-dma (currently $48.50), and is rapidly
approaching the 52-week low at $37.13. The directionless
action on the broader markets actually served to buoy the
stock a bit, as it managed to gain $1.19 on slightly less
than average volume. Look for the decline to continue as
investors move their cash to the strongest stocks and leave
the under-performers on the sidelines. Any failed rally will
provide a better entry point; consider new positions when the
stock rolls over near resistance and enjoy the ride.
BUY PUT JUN-50*EUT-RJ OI=291 at $8.88 SL=6.25
BUY PUT JUN-45 EUT-RI OI= 69 at $5.75 SL=3.75
BUY PUT JUN-40 EUT-RH OI= 34 at $3.13 SL=1.50
Average Daily Volume = 1.60 mln
/charts/charts.asp?symbol=EXTR
****
HLIT - Harmonic Lightwaves $38.00 (-8.13)(-17.75)
Harmonic designs, manufactures and markets digital and fiber
optic systems for delivering video, voice and data over cable,
satellite and wireless networks. The company is headquartered in
Sunnyvale, CA where it also operates an R&D center and a
manufacturing facility. It maintains several sales and support
centers worldwide including its subsidiaries in Israel and the UK.
Since that apocalyptic Fed meeting on May 9th, HLIT has lost
$26.38, or put in a more applicable perspective, 41% of its
share price. WOW! The phenomenal rate at which apprehensive
investors have unloaded HLIT is just "peachy keen" for us put
players. The uncertainty in the markets and big concerns
regarding Harmonics future value continues to drive it closer to
$23.25, the 52-week low. Let's back up a little to May 3rd for
the new readers. On that day, Harmonic completed its acquisition
of Divicom, a maker of video compression equipment used by
satellite-TV companies. The news didn't fare well with
shareholders. Many feared the $1.74 bln deal would be a drag on
the company's future revenue growth. As you can see in
hindsight, investors lost no time spearheading their
disapproval. While the play has without doubt lavished a
multitude of profit opportunities, we want to be on guard next
week. First, we can't ignore the tempting basement prices nor
the possibility of a changing market sentiment (yes, a rally is
possible!). From the a 10-dma perspective, HLIT is far below
that $46.78 line. However, the 5-dma ($39.68) is now closer at
hand. Downward bounces from here followed by moves through
Wednesday's intraday low of $35 would provide reasonable
confirmation that HLIT's isn't veering from its path. Look too
for the volume to remain robust in the coming days.
BUY PUT JUN-45*LOQ-RI OI=316 at $8.13 SL=5.75
BUY PUT JUN-40 LOQ-RH OI=164 at $5.75 SL=3.75
BUY PUT JUN-35 LOQ-RG OI= 7 at $2.94 SL=1.50
Average Daily Volume = 1.99 mln
/charts/charts.asp?symbol=HLIT
****
NTOP - Net2Phone $26.50 (-4.63)(-9.13)
Net2Phone provides its 325,000+ customers with the ability to
make phones call through the Internet using personal computers,
faxes or telephones at a much lower cost than wireless or hard-
line calling. The company is the #1 Internet telephone carrier
and is expanding internationally through an alliance with AT&T
and Sprint. The long-distance company, IDT, still retains 48%
of NTOP.
NTOP is one of those Internet Telecoms that has, thus far,
avoided charging customers high-cost access fees. The bottom-
line? NTOP is at a big competitive advantage over traditional
and local phone companies, that is until now. While on one hand
the House of Representatives passed a bill May 16th to
permanently ban the FCC from taxing ISPs on a per-minute basis,
the bill failed to bar the FCC from imposing so-called access
fees on ISPs. Essentially, this boils down to the reality that
consumers could still pay a tax on Internet access someday. Bad
news in an already troubled environment. Needless to say NTOP
was kicked to the curb. Since getting the boot, the share
price's been reduced by one-third. The technical players likely
stepped into the game when NTOP slid under the $40 mark further
pumping up the downward pressure. This technical breakdown is
significant when you consider NTOP saw a rapid rise from a low
of $15 to an all-time high of $92.38 during the days of its IPO
in July/August 1999. This Wednesday we saw an intraday bottom
at $22.50, just above the light support level of $20. But while
$28 served as an impregnable resistance this week, it'd still be
better to see NTOP make subsequent downward moves from here. We
don't want to get caught in a narrow trading range. And mark
your earnings' calendar too. Net2Phone is confirmed to report
1Q earnings on Wednesday, May 31st after the market.
BUY PUT JUN-30 UPT-RF OI= 9 at $4.50 SL=2.75
BUY PUT JUN-25*UPT-RE OI=25 at $1.56 SL=0.75
Average Daily Volume = 555 K
/charts/charts.asp?symbol=NTOP
****
FDRY - Foundry Networks Inc. $55.00 (-10.50)(-2.63)(-22.00)
Foundry Networks Inc. is a leader in high performance end-to-end
switching and routing solutions including Internet routers, Layer
3 switches and Layer 4-7 Internet Traffic Management switches.
Foundry products are installed in the some of the world's largest
ISPs including AOL, EarthLink, AT&T WorldNet, MSN, and Cable and
Wireless. Their products are also installed in large enterprise,
entertainment, pharmaceutical and manufacturing companies as well
as search engines, e-commerce sites, universities and government
organizations.
Oversold or not, you have to wonder just how much lower Foundry
can go. The successive lows the past three days have dragged FDRY
back below the level of its IPO in late September. Friday the
company made another new low at $51.88. Keep in mind not only
did the stock open near $54.50 last fall, but hit an all-time
high at $212 on March 10th. The decline since then has been
brutal to say the least. For our purposes, it's been a very
profitable play. In mid April FDRY reported better than expected
earnings, yet the buyers that have come to the rescue have been
slapped by waves of selling. It's really not clear whether the
company is suffering from competition in the industry, or from
the overall sentiment in the market place. Of the eight brokers
covering FDRY, seven have the company rated a Strong Buy or Buy.
However, the people that vote with their money have the company
rated a sell. We said earlier that for most of the week FDRY
traded like a stock trying to find a bottom. Friday's low came in
the first hour of trading when a few brave souls stepped in and put
their money on the table, bidding the price back up to close at
$55. Resistance now comes into play near $58, $60 and $62. The
move back up Friday came on very light volume with no "spikes"
or "surges" of buyers entering the market. This would indicate
that it's probably only a short-term move back up to a resistance
area, which is likely to find bears lurking in the bushes. For now,
the trend is our friend, and our friend is still headed south.
BUY PUT JUN-60 OUJ-RL OI= 25 at $10.13 SL=7.13
BUY PUT JUN-55 OUJ-RK OI= 3 at $ 6.75 SL=4.75
BUY PUT JUN-50*OUJ-RJ OI=275 at $ 4.00 SL=2.50
Average daily volume = 1.39 mln
/charts/charts.asp?symbol=FDRY
****
ICIX - Intermedia Communications $24.94 (-5.94)
Intermedia Communications is an integrated communications
provider headquartered in Tampa, Florida. They offer local and
long-distance services, enhanced data transmission, Internet
access, and Web hosting to businesses and government agencies.
Its fiber-optic network stretches across 14 southeastern US
cities and they have a 5,000-mile long-haul microwave
transmission system in the Northeast. Their services are
offered throughout the US and in select international markets.
Some people have a lucky number or best day of the week. On the
flip side, ICIX seems to be having "bad hair" days on Fridays.
After getting the fatal push off bottom support of $32 and $33
the previous Friday, in which traders sold off their holdings in
a panic, things have just gotten worse for this struggling
telecom. On Tuesday ICIX bearishly closed smack on its intraday
low of $28.19 and by Wednesday mid-afternoon had dipped to
$23.88 setting a lower near-term bottom support. Importantly,
overhead resistance also established itself at $28.63 as the market
tried to fight its way into bull territory in the following days,
just under the prevailing 10-dma ($30.72). Another good sign
for this put play was the late day sell-off on Friday. ICIX
tracked lower and once again cut down its share price a whopping
percentage. ICIX shed $2.94, or 11.8% on increasing volume,
which matched the previous Friday's sentiment at more than
double the ADV. Bounces off the 5-dma at $27.59 or more
conservatively, watch for downward progression through the
current price level as potential entry points. Of course, your
entry depends on your risk portfolio. Keep a sharp lookout for
signs of a buying spree (positive moves through the 10-dma) or
an impressive change in market sentiment.
BUY PUT JUN-30*QIX-RF OI=293 at $6.00 SL=4.00
BUY PUT JUN-25 QIX-RE OI=300 at $2.63 SL=1.25
Average Daily Volume = 1.28 mln
/charts/charts.asp?symbol=ICIX
****
INCY - Incyte Pharmaceuticals, Inc. $49.06 (-8.69)(-11.00)
Quick version: Incyte provides information about genes, related
data management software, verified copies of genes and related
reagents and services to pharmaceutical and biotechnology
researchers. Details: INCY is a leading provider of an
integrated platform of genomic technologies designed to aid in
the understanding of the molecular basis of disease. Incyte
develops and markets genomic databases, genomic data management
software, microarray-based gene expression services, and related
reagents and services. These products and services assist
pharmaceutical and biotechnology researchers with all phases of
drug discovery and development including gene discovery,
understanding disease pathways, identifying new disease targets
and the discovery and correlation of gene sequence variation to
disease.
Friday didn't give us much of an entry since INCY traded fairly
flat from $50 at the open to $46 intraday. Nonetheless, in the
heat of the down market, INCY has been a shriveling grape. Based
on the chart, we look for the trend to continue. The rest of the
sector is suffering too with most other biotech charts in descent
mode (except DNA and SEPR). While there was some price recovery
action into the close, the volume was rather light telling us that
there may have been someone trying to put a headfake on the markets
Tuesday morning with the hope of selling into strength. Unless
the rest of the sector takes off on Tuesday, don't bet on INCY
getting much over $50. In fact, we think that would make an
excellent level of resistance to take a position once the
rollover begins. If things get out of hand, that same rollover
could occur at $53, which could make an even better entry. Just
make sure you see the bounce down from there. If you are bit
more conservative, start looking for an entry on a descent under
$46. There is strong support again at $43, then after that at
$40 where we would expect firm support. Careful. With the
sector beaten up so badly, and a likely trading rally probably on
tap sometime this week, traders could jump into this sector
again, thus derailing the play. Just because it looks bad
doesn't mean we shouldn't exercise good money management by
keeping stops in place. Be prudent and enjoy the ride.
BUY PUT JUN-55 IPQ-RK OI= 38 at $12.50 SL=9.50
BUY PUT JUN-50 IPQ-RJ OI= 58 at $ 8.75 SL=6.00
BUY PUT JUN-45*IPQ-RI OI=150 at $ 5.75 SL=3.75
Average Daily Volume = 1.3 mln
/charts/charts.asp?symbol=INCY
****
PCLN - Priceline.com $36.13 (-8.63)
Priceline.com has pioneered a type of e-commerce known as a
"demand collection system" that enables consumers to use the
Internet to save money on a wide range of products and services,
while enabling sellers to generate incremental revenue. Using a
simple consumer proposition (name your price), PCLN collects
individual customer offers (guaranteed by a credit card) for
airline tickets, hotel rooms, groceries, long distance, and new
cars at a price set by the customer, then communicates that
demand directly to participating sellers or to their private
databases. Consumers agree to hold their offers open for a
specified period of time to enable priceline.com to fulfill their
offers from inventory provided by participating sellers. Once
fulfilled, offers generally cannot be canceled. By requiring
consumers to be flexible with respect to brands, sellers and/or
product features, PCLN enables sellers to generate incremental
revenue without disrupting their existing distribution channels
or retail pricing structures.
Welcome to the latest edition of "The Price is Wrong", where
consumers lose unless they are clairvoyant. Huh? Say Priceline
can get you a ticket for $280. You bid $275 - sorry, you lose.
OK, say you are willing to bid $300. You win the ticket, but
you've overpaid because you can already find the best price
yourself. You can do it now with a proxy comparison shopper like
My Simon. The Internet in the end is the great equalizer and
will leave no room for middlemen whose secret desire is to get
you to overpay in hopes they can profit from your lack of
knowledge. In short, their business model is not in the best
interest of consumers and is ultimately unsustainable (strike
one). What about their patented technology? Sorry, it's not
likely enforceable and any code writer can build a comparison
shopping engine to better benefit consumers (strike two).
Technically too, PCLN closed at another new low since going
public in March, 1999. It's been falling steadily since breaking
below $45 support and now has the 5-dma (currently $38.76) acting
as resistance. No support and all resistance makes a bad chart
(strike three). If you need strike four, note too that PCLN is a
long way from profitability - it's losses exceed its revenue.
Pretty compelling argument, eh? You may want to consider an
entry on any bounce south of $38.50 or $41, depending on your
risk profile. Otherwise, wait for a clear descent below $33,
last Wednesday's intraday low. Any market driven reversal or
positive announcement from the company has the potential to hike
the price, though we think it's a bit like re-arranging the deck
chairs on the Titanic. Careful though - not every day will be
negative since nothing goes down forever in a straight line. We
still need to exercise good money management techniques by using
stop losses if the trade goes against us.
BUY PUT JUN-40 PUZ-RH OI=1606 at $6.13 SL=4.25
BUY PUT JUN-35*PUZ-RG OI=1364 at $3.38 SL=1.75
BUY PUT JUL-35 PUZ-SG OI= 134 at $5.13 SL=3.13
Average Daily Volume = 3.9 mln
/charts/charts.asp?symbol=PCLN
****
DCLK - DoubleClick $41.13 (-9.25)
DoubleClick is an online advertising firm that offers targeted ad
delivery using it patented DART technology, a dynamic analysis
tool that collects information on audience behavior and uses
that data to target ad placement. DART also measures Web traffic
and ad effectiveness. DoubleClick delivers ads to more than
1,300 sites in its network, including AltaVista and US News
Online. Doubleclick is expanding its business through merger and
acquisition.
We've picked up DCLK where we last left it. Facing harsh
criticism from the Senate Commerce Committee. Chairman of the
committee, Sen. John McCain criticized several Web sites for
their privacy disclosure practices and their deceptive "mumbo
jumbo" during a hearing on Capitol Hill Thursday. McCain stopped
short of advocating a law to protect privacy, but he did signal
that support for legislation was growing within the committee.
The issue at hand is how Web companies collect and subsequently
disseminate personally identifiable information about consumers
as they shop on the Internet. And the inability of consumers to
view their personal profiles that DCLK - in this case - has
created. Whether or not the Commerce Committee proceeds with
implementing the legislation remains a question. But people
familiar with the situation said the likelihood of the
legislation passing has improved in the past weeks. After
witnessing what happened to other leading tech stocks after
government intervention (i.e., MSFT and the WCOM-FON merger)
investors have pulled away from DCLK. Creating a good
opportunity to capitalize with a put play! Traders' nervousness
is clearly seen on the chart. DCLK crashed through critical
support last week, and closed Friday hovering above another key
support level. DCLK hasn't traded at its current levels since
last Autumn! A failure of support at $40 leaves DCLK with very
little help. In fact, the stock doesn't have major support until
$20. Look for an entry if DCLK falls below $40, and make sure
that the heavy selling from last week continues before entering
the play. Pay attention to the volume to confirm a full-fledged
collapse.
BUY PUT JUN-50 QWE-RJ OI=1951 at $10.38 SL=7.25
BUY PUT JUN-45*QWE-RI OI=3711 at $ 6.63 SL=4.50
BUY PUT JUN-40 QWE-RH OI= 207 at $ 3.50 SL=1.75
Average Daily Volume = 3.76 mln
/charts/charts.asp?symbol=DCLK
****
TRW - TRW Inc. $48.00 (-4.81)
TRW is an international company that serves the automotive,
space and defense, and computer industries. The company serves
the auto market (which accounts for 70% of sales) with airbags,
antilock brake and traction-control systems, seat belt systems,
and steering and suspension systems. TRW's space and defense
products include spacecraft and satellite technology, defense
communications equipment, and high-energy lasers. The company
also provides computer systems to government and private-sector
clients through its information technology unit.
Virtually ignoring the strength of the rest of the market, TRW
has been stuck in a trading range since the middle of 1997.
With amazing consistency, the stock is unable to crack either
the $60 resistance level or the $40 support level. There have
been a couple brief (2-3 day) excursions slightly beyond these
levels, but like a rubber band, TRW always snaps back into the
defined range. After several attempts to break through
resistance during the recent market weakness, the bulls appear
to have given up and TRW is rolling over again. Friday's
decline was particularly encouraging, not because of the size
(only $0.88), but because of the strong volume (more than 50%
above the ADV) in a quiet and directionless overall market.
As interest rate hikes are starting to finally have their
desired effect, reports are coming out that the auto industry
is slowing and will likely slow even more going forward. With
70% of sales coming from this sector, TRW will feel even more
pressure as it heads back to the bottom of the range. Friday's
decline dropped the stock right to support at $48 and
conservative traders will wait for a break through this level
on continued strong volume before initiating new positions.
Overhead resistance is found at $51, (also the site of the
200-dma), and a brief rally to this level could provide an
even more attractive entry.
BUY PUT JUN-55*TRW-RK OI=161 at $6.88 SL=5.00
BUY PUT JUN-50 TRW-RJ OI=100 at $3.25 SL=1.50
BUY PUT JUN-45 TRW-RI OI= 66 at $1.06 SL=0.00
Average Daily Volume = 587 K
/charts/charts.asp?symbol=TRW
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SEE DISCLAIMER IN SECTION ONE
*****************************

The Option Investor Newsletter 5-28-2000
Sunday 5 of 5
*************
COVERED CALLS
*************
Success Basics: Avoiding the "Buy-and-Hold" Mentality...
With any investment, it is important to buy with both a defined
purpose and a specific objective. In each and every scenario, a
successful trader constructs a distinct plan for entry and exit,
based on a target profit and maximum loss limit. Adjustments are
anticipated and as the position matures, changes are made when
the situation dictates. Vigilance is maintained and all options
are reviewed even when the trade performs as expected. Only in
this manner can you expect to achieve consistent profits.
Rarely do we acquire investment positions with the expectation of
holding them forever. That syndrome develops from uncertainty in
one's trading goals. Inadequate preparation and the desire to
avoid losses are the primary reasons that investors fall into the
"Buy and Hold" mode. Failure to think strategically with a plan
for success and an arsenal of defensive tactics for failure, will
doom even the most prolific trader. Emotions also play a part in
the process. Without a specific approach and clear-cut purpose,
you are subject to an investor's worst enemies; hope and fear.
Hope convinces you that the situation will improve no matter how
bad the fundamental or technical outlook while greed keeps you in
a winning play long after the optimum exit opportunity has passed.
When there is difficulty in entering a trade, we subconsciously
build an aversion to future decision-making that will eventually
determine profit or loss. Since change is inevitable, chances are
good the original position will need to be closed or adjusted long
before it reaches maximum potential. After you've opened a new
play, it is important to anticipate an unforeseen outcome. Assume
that anything can go wrong. Incidents that could not possibly be
envisioned will often occur. That's why it so important to have a
trading plan and maintain a mind-set of constant vigilance. Even
when events happen seemingly according to plan it's important to
continuously review the position and its potential for profit.
Knowledge of trading mechanics and the strengths and weaknesses of
a specific position is a requisite for consistent success. If you
don't understand completely what makes a trade profitable or when
it might fail, the probability of a successful outcome is almost
nil. Developing a portfolio based on the appropriate risk/reward
attitude is paramount and suitability, along with an investors
financial condition, is the key to determining which strategy may
be best for any one individual. Regardless of the technique or
method you select, each individual investment should support one's
long-term portfolio goals.
The purpose of any system is to help an investor successfully
manage portfolio assets. The fundamental objective is to develop
a selection of proven techniques that can profit under all but the
most unfavorable conditions. This includes provisions for locking
in gains and limiting losses, including specific guidelines for
initiating, adjusting, and closing positions. Developing these
rules can be difficult but the process is necessary for success
in today's complex markets. After all, following a carefully
planned approach with precision and discipline is the one sure
path to consistent profits.
Good Luck!
SUMMARY OF PREVIOUS PICKS
*****
NOTE: Using Margin doubles the listed Monthly Return!
Stock Price Last Call Strike Price Profit Monthly
Symbol Picked Price Month Sold Picked /Loss Return
PSSI 9.50 7.88 JUN 7.50 2.63 *$ 0.63 10.0%
FHS 11.38 11.81 JUN 10.00 2.13 *$ 0.75 8.8%
CENT 11.81 10.38 JUN 10.00 2.50 *$ 0.69 6.4%
SMRT 8.53 7.88 JUN 7.50 1.50 *$ 0.47 5.8%
CCCG 13.50 12.38 JUN 10.00 4.00 *$ 0.50 5.7%
CAIR 22.88 19.56 JUN 17.50 6.38 *$ 1.00 5.3%
BEAM 12.44 18.50 JUN 10.00 3.00 *$ 0.56 5.2%
AAS 22.00 24.88 JUN 20.00 2.88 *$ 0.88 5.0%
WGR 21.00 22.50 JUN 17.50 4.13 *$ 0.63 4.1%
LPNT 20.63 22.06 JUN 17.50 3.75 *$ 0.62 4.0%
ANET 12.94 10.00 JUN 12.50 1.13 $ -1.81 0.0%
DRIV 18.81 10.88 JUN 15.00 4.75 $ -3.18 0.0%
BCC 36.44 29.38 JUN 35.00 3.38 $ -3.68 0.0%
*$ = Stock price is above the sold striking price.
Comments:
Pss World Medical's (PSSI) technical picture has turned ugly
after breaking below its 150 dma. There is support near $7.00
but an early exit may be prudent. One of PSS's board members,
who is CEO of a fund, has resigned. Act Networks (ANET) is
suffering as Clarent (CLRN) drops in price and concerns over
a failed buyout increase. Although the selling has been on
relatively light volume it may be sensible to close the play
and move on. Digital River (DRIV) is testing its April low
and is quite oversold. Rolling-out of the position on the next
rally may be the best alternative. Deutsche Banc Alex Brown
hammered the paper sector on Tuesday which in turn ruined Boise
Cascade (BCC) for the near term. The gap-down drop on Tuesday
should have signaled an early exit as it pushed the issue below
its 150 dma. Monday's sell-off suggests somebody "knew" what
was coming. It is hard to fight an uphill battle against both
the Market and Sector.
NEW PICKS
*********
EDITORS NOTE:
The current attitude toward equities is reflected in the lack
of premium in call options. When combined with the technical
outlook for the majority of small-cap issues, the potential
number of favorable Covered-Call candidates becomes quite low.
With that fact in mind, we ask that you carefully consider the
Market's present condition and evaluate the overall risk/reward
outlook before participating in any of these positions.
Sequenced by Company
*****
Stock Last Call Strike Option Last Open Cost Days to Monthly
Symbol Price Month Price Symbol Bid Intr Basis Expiry Return
ADAC 17.38 JUN 15.00 QAB FC 2.75 106 14.63 21 3.7%
CWST 12.63 JUN 10.00 KWQ FB 3.00 176 9.63 21 5.6%
CYBS 14.94 JUN 12.50 CAQ FV 3.00 52 11.94 21 6.8%
EGOV 15.44 JUN 12.50 EGU FV 3.50 340 11.94 21 6.8%
PXD 14.06 JUN 12.50 PXD FV 1.88 407 12.18 21 3.8%
WGR 22.50 JUN 20.00 WGR FD 3.25 308 19.25 21 5.6%
Sequenced by Return
*****
Stock Last Call Strike Option Last Open Cost Days to Monthly
Symbol Price Month Price Symbol Bid Intr Basis Expiry Return
CYBS 14.94 JUN 12.50 CAQ FV 3.00 52 11.94 21 6.8%
EGOV 15.44 JUN 12.50 EGU FV 3.50 340 11.94 21 6.8%
CWST 12.63 JUN 10.00 KWQ FB 3.00 176 9.63 21 5.6%
WGR 22.50 JUN 20.00 WGR FD 3.25 308 19.25 21 5.6%
PXD 14.06 JUN 12.50 PXD FV 1.88 407 12.18 21 3.8%
ADAC 17.38 JUN 15.00 QAB FC 2.75 106 14.63 21 3.7%
Company Descriptions
LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, MR-Monthly Return.
*****
ADAC - ADAC Laboratories $17.38 *** Break-out! ***
ADAC Laboratories is the world market-share leader in nuclear
medicine and radiation therapy planning systems, and a technology
leader in providing clinical workflow solutions, management
information and knowledge systems to healthcare organizations in
North America. ADAC is headquartered in Milpitas, CA, and its
HealthCare Information Systems Division is located in Houston, TX.
Lots of news on ADAC Labs: earnings improvement, new contracts,
new products, and an upgrade back in January. It appears the
improvement in gross margins and tighter control of operating
expenses has helped the company. The stock has climbed steadily
from last year's low, recently moving to a new 52 week high. The
technical picture continues to improve and strengthen even in this
horrid market environment. We feel ADAC Labs offers reasonable
speculation on a bullish stock. Target shooting for a net debit
of $14.50 or selling half the position at a higher strike offers
a larger potential return.
JUN 15.00 QAB FC LB=2.75 OI=106 CB=14.63 DE=21 MR=3.7%
Chart =
/charts/charts.asp?symbol=ADAC
****
CWST - Casella Waste Systems $12.63 *** Improving Sector ***
Casella is a regional integrated non-hazardous solid waste services
company that provides collection, transfer, disposal and recycling
services in the eastern area of the U.S. and parts of Canada. Its
operations include the ownership and/or operation of landfills,
transfer stations, tire processing, and similar sites and services.
Casella was cut almost in half in February after lowering its
earnings estimates. There has been no recent news since a lawsuit
was filed April 3rd regarding the lowered expectations. The stock
has climbed quickly out of its stage I base and recently closed
above its 150 dma. The waste management sector is gaining a lot
of attention in the media and the technicals suggest Casella is
under strong accumulation. We favor a cost basis below the 30 dma
as the stock is somewhat overextended in the short term.
JUN 10.00 KWQ FB LB=3.00 OI=176 CB=9.63 DE=21 MR=5.6%
Chart =
/charts/charts.asp?symbol=CWST
****
CYBS - CyberSource $14.94 *** Stage I Base ***
CyberSource is a leading developer and provider of real-time,
e-commerce transaction services. They offer applications to
online merchants for global payment processing, fraud prevention,
tax calculation, export compliance, and similar services. More
than 1700 clients, including Amazon, Priceline, and Compaq.
CyberSource reported revenues for the first quarter of 2000 were
up 294% over last year's first quarter and saw stronger than
anticipated demand for their professional services group. Several
new contracts suggest another upside surprise may be in store for
next quarter. The stock has been flat over the last month even
as the rest of the Market moved lower. There are several positive
technical indicators that suggest an upward resolution is the more
probable future for CyberSource.
JUN 12.50 CAQ FV LB=3.00 OI=52 CB=11.94 DE=21 MR=6.8%
Chart =
/charts/charts.asp?symbol=CYBS
****
EGOV - Nat'l Information Consortium $15.44 *** Speculation ***
National Information Consortium is a provider of Internet-based,
electronic government services that help governments use the
Internet to reduce costs and provide better service. It does
this through its portal business, by contracting with governments
to build and operate Internet-based portals. It also has two
additional business lines, eFed and NIC Conquest. NIC recently
completed its acquisition of SDR Technologies and now has
government partnerships in 23 states representing more than 50
percent of the U.S. population. This week, Credit Suisse First
Boston initiated coverage on NIC with a STRONG BUY rating, a
near-term price target of $35, and a twelve-month price target
of $60. The stock climbed $5 on heavy volume and appears to be
putting in a technical bottom. For speculators only!
JUN 12.50 EGU FV LB=3.50 OI=340 CB=11.94 DE=21 MR=6.8%
Chart =
/charts/charts.asp?symbol=EGOV
****
PXD - Pioneer Natural Resources $14.06 *** Oil Hedge ***
Pioneer is an independent oil and gas exploration and development
company. The Company has ownership interests in oil and gas
properties principally in the Mid Continent, Southwestern and
onshore and offshore Gulf Coast regions of the U.S., and in
Argentina, Canada, South Africa and Gabon. Favorable earnings
and a couple of upgrades, not to mention oil around $30 a barrel,
have helped move Pioneer to a new 52 week high. The stock
is in a stage II climb with support near our cost basis. We
favor a conservative entry point but more aggressive types may
try to target shoot a net-debit of $12.00 or sell half the
position at a higher strike, depending on your long term outlook.
JUN 12.50 PXD FV LB=1.88 OI=407 CB=12.18 DE=21 MR=3.8%
Chart =
/charts/charts.asp?symbol=PXD
****
WGR - Western Gas Resources $22.50 *** It's A Gas, Man! ***
Western Gas Resources is an independent gas gatherer and processor,
producer, transporter and energy marketer providing a full range of
services to its customers from the wellhead to the sales delivery
point. The Company designs, constructs, owns and operates natural
gas gathering, processing and treating facilities in the major gas
producing basins of the United States. The company is in position
to reap a rich bounty as the fundamentals for natural gas prices
strengthen. This quarter's earnings were quite favorable with
revenues increasing 32% over the first quarter last year as the
company posted an EPS of $0.32 vs. a loss of $0.15. There was no
technical pause after earnings as WGR continued its up-trend and
closed at a new 52-week high. It another week and a $1.50 higher
but we still favor a conservative entry point, even with the recent
upgrade to a strong buy.
JUN 20.00 WGR FD LB=3.25 OI=308 CB=19.25 DE=21 MR=5.6%
Chart =
/charts/charts.asp?symbol=WGR
******************
BIG CAP NAKED PUTS
******************
By Matt Russ
Stock Stock Strike Option Option Margin Percent Support
Symbol Price Price Symbol Price At 25% Return Level
AETH 118.50 110 HEX-RB 9.63 2963 33% 115
AETH 118.50 120 HEX-RD 15.00 2963 51% 115
AMCC 89.50 85 AEX-RQ 7.88 2238 35% 85
AMD 73.56 70 AMD-RN 4.13 1839 22% 70
AMD 73.56 80 AMD-RP 9.63 1839 52% 70
BRCD 104.38 100 UBF-RT 7.25 2610 28% 100
CHKP 162.31 150 YKE-RJ 6.75 4058 17% 150
CHKP 162.31 155 YKE-RK 8.75 4058 22% 150
CHKP 162.31 170 YKE-RN 17.88 4058 44% 150
DNA 103.50 100 DNA-RT 6.00 2588 23% 100
ELON 54.03 50 EUL-RJ 4.88 1351 36% 50
EMC 109.25 105 EMB-RA 4.38 2731 16% 105
ETEK 170.63 165 FNY-RM 9.38 4266 22% 160
EXDS 61.94 60 DUB-RL 4.63 1549 30% 60
ITWO 96.06 90 QYJ-RR 7.12 2402 30% 90
JNPR 153.00 140 JUX-RH 7.12 3825 19% 140
JNPR 153.00 150 JUX-RJ 12.00 3825 31% 140
MLNM 75.00 75 QMR-RO 6.25 1875 33% 75
MRVC 50.75 50 VQX-RJ 5.63 1269 44% 48
NEWP 132.56 130 NZZ-RF 10.75 3314 32% 130
NSOL 130.94 125 JNV-RE 8.38 3274 26% 125
NVDA 105.31 100 UVA-RT 8.63 2633 33% 100
PDLI 101.00 100 PQI-RT 10.38 2525 41% 100
PMCS 135.00 120 SZI-RD 5.50 3375 16% 130
PMCS 135.00 130 SZI-RF 8.88 3375 26% 130
RBAK 72.00 70 BUK-RN 7.63 1800 42% 68
RMBS 162.88 150 BNQ-RJ 10.50 4072 26% 150
RMBS 162.88 160 BYQ-RL 14.63 4072 36% 150
RMBS 162.88 180 BYQ-RP 26.63 4072 65% 150
SDLI 197.75 180 QZL-RP 11.25 4944 23% 170
SDLI 197.75 190 QZL-RR 15.25 4944 31% 170
SSTI 69.00 65 SSU-RL 3.13 1725 18% 65
TQNT 83.25 80 TNN-RP 5.50 2081 26% 75
VRTS 107.06 105 VUQ-RA 7.38 2677 28% 100
VRTX 64.25 60 VQR-RL 3.38 1606 21% 62
YHOO 112.00 110 YMM-RB 6.50 2800 23% 110
To download a spreadsheet version of this file, click here:
http://www.OptionInvestor.com/downloads/hpmay-28.xls
AMD - Advanced Micro Devices
AGGRESSIVE SELL PUT JUN-80 AMD-RP at $9.63 = 52%
CONSERVATIVE SELL PUT JUN-70 AMD-RN at $4.13 = 22%
CHKP - Check Point Software
AGGRESSIVE SELL PUT JUN-170 YKE-RN at $17.88 = 44%
MODERATE SELL PUT JUN-155 YKE-RK at $ 8.75 = 22%
CONSERVATIVE SELL PUT JUN-150 YKE-RJ at $ 6.75 = 17%
RMBS - Rambus
AGGRESSIVE SELL PUT JUN-180 BYQ-RP at $26.63 = 65%
MODERATE SELL PUT JUN-160 BYQ-RL at $14.63 = 36%
CONSERVATIVE SELL PUT JUN-150 BNQ-RJ at $10.50 = 26%
DISCLAIMER: Before entering any of the positions listed above,
you need to understand your risk tolerance. Selling puts can
be a High-Risk endeavor depending on the strike you choose to
sell. For a greater return, you run a higher risk of being
exercised. Therefore, please consider other strikes than the
ones listed below if you aren't comfortable with the one we
choose. We are gearing these towards higher-risk players. In
any case, you can always select a lower strike with a lower
return if it better meets your suitability.
***********************
CONSERVATIVE NAKED PUTS
***********************
Option Trading Basics: The Possibilities Are Endless!
One of the most common questions we receive from new subscribers
is, "What makes option trading so attractive?" The benefits of
stock and index options are numerous. Trading options offers the
investor a method to participate in the market with limited risk
and increased flexibility. Options can be used to hedge stock
portfolios, protect long-term holdings from market declines or
benefit from directional trends or changes in the technical
character of a specific issue.
Options have become a popular tool for managing portfolio risk
and creating profits through increased leverage. Experienced
traders and mutual fund managers use a number of techniques to
maximize returns in long-term investments. The major advantage
of options is their versatility. They can be utilized in a
conservative or aggressive manner, depending on your investing
style, and the variety of strategies enable an investor to tailor
each individual position to a specific set of circumstances. One
unique trait is their ability to provide trading opportunities in
almost any market condition; trending, range-bound, or stagnant.
Combinations of options can be used in a variety of different
techniques to benefit from specific conditions and scenarios.
Even when you don't have an opinion about an instrument's future
direction, you can profit from changes in volatility or time
decay in option premiums. The most significant advantage for the
novice trader is that options can help you achieve any trading or
risk management objective and multiply the opportunity for profits
in almost every type of investment.
For the beginner, options are complex but that's no different than
the stock market which is extremely fast paced and demanding, even
for an experienced trader. Understanding how options work is a
daunting task for most investors but the advantages of this form
of trading are worth the time involved in learning how it works.
As an option trader, the most important skill is to be able to
identify favorable opportunities, those with a high probability of
profit and low risk. Unfortunately, with all of the positions to
choose from, it can be extremely difficult to select the most
appropriate trading strategy and the options in which it should be
implemented. The key is position analysis and before you can be
successful in option trading, you must understand the components
that determine an option's value and its potential for change.
The most important factors in option trading are market movement,
option volatility and time decay. The knowledge of these concepts
is vital to long-term success and without a complete understanding
of option theory, your losses will be many. The first requirement
is familiarity with option pricing. Option values can be measured
through mathematical evaluation and if you aren't comfortable with
complex formulas, pricing models will help you determine the fair
market value of an option. Another important component of option
trading is risk management. There are two fundamental risks in
derivatives; undesirable price movement in the underlying issue
and changes in the options potential value (implied volatility).
Adverse price movements can be managed through the use of trading
stops and combination positions. Implied volatility is often the
most difficult concept to master but there are a number of ways to
reduce your exposure to this aspect of option trading. One of the
simplest approaches is buying premium (calls, puts, and straddles)
when you foresee an increase in market volatility and in contrast,
selling premium (credit straddles, spreads and ratio positions)
when volatility is expected to fall. Most volatility fluctuations
follow historical patterns and the tendency to return to previous
ranges can be used to profit on a regular basis.
Options offer both traders and investors a number of outstanding
opportunities. The question is whether you are willing to devote
the time and dedication necessary to become successful in this
discipline.
Good Luck!
*** WARNING!!! ***
Occasionally a company will experience catastrophic news causing
a severe drop in the stock price. This may cause a devastatingly
large loss which may wipe out all of your smaller gains. There is
one very important rule; Don't sell naked puts on stocks that you
don't want to own! It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops. Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a buy-to-close STOP at a price that is no more than twice
the original premium from the sold option.
SUMMARY OF PREVIOUS PICKS
*****
Stock Price Last Put Strike Price Profit Monthly
Symbol Picked Price Month Sold Picked /Loss Return
ADEX 19.56 15.00 JUN 15.00 0.69 $ 0.69 13.0%
TMAR 9.25 8.81 JUN 7.50 0.25 *$ 0.25 12.3%
UNM 20.19 20.81 JUN 17.50 0.56 *$ 0.56 10.2%
ADVP 17.13 16.75 JUN 12.50 0.31 *$ 0.31 9.0%
GZMO 17.19 12.38 JUN 10.00 0.31 *$ 0.31 9.0%
CLPA 29.38 23.63 JUN 15.00 0.63 *$ 0.63 8.4%
WLV 16.94 16.38 JUN 15.00 0.50 *$ 0.50 8.1%
CLPA 27.19 23.63 JUN 15.00 0.44 *$ 0.44 8.1%
NGH 20.88 21.19 JUN 17.50 0.38 *$ 0.38 7.7%
VRTL 17.00 12.19 JUN 10.00 0.31 *$ 0.31 7.3%
ALL 26.75 26.81 JUN 22.50 0.44 *$ 0.44 6.9%
XTO 17.69 18.19 JUN 15.00 0.38 *$ 0.38 6.9%
TBI 20.81 21.31 JUN 17.50 0.38 *$ 0.38 6.1%
TRMB 36.00 38.94 JUN 25.00 0.44 *$ 0.44 5.0%
*$ = Stock price is above the sold striking price.
Comments:
Evaluate your long-term outlook on Ade Corp. (ADEX) as it
has fallen to a yearly low. Genzyme Molecular (GZMO) is
testing support at its 150 dma and a move through that
range would likely signal a new downtrend. Vertel (VRTL)
is also testing the April low. Mind your loss-cut points.
NEW PICKS
*********
Sequenced by Company
*****
Stock Last Put Strike Option Last Open Cost Days to Monthly
Symbol Price Month Price Symbol Bid Intr Basis Expiry Return
ADAC 17.38 JUN 15.00 QAB RC 0.56 40 14.44 21 15.8%
ADVP 16.75 JUN 12.50 QVD RV 0.38 86 12.12 21 14.8%
BBSW 17.00 JUN 12.50 UUO RV 0.38 4652 12.12 21 14.6%
MATK 18.88 JUN 15.00 KQT RC 0.31 5 14.69 21 11.0%
MSM 22.06 JUN 17.50 MSM RW 0.50 215 17.00 21 14.7%
NGH 21.19 JUN 17.50 NGH RW 0.25 1699 17.25 21 7.2%
YRK 25.94 JUN 22.50 YRK RX 0.56 22 21.94 21 10.8%
Sequenced by Return
******
Stock Last Put Strike Option Last Open Cost Days to Monthly
Symbol Price Month Price Symbol Bid Intr Basis Expiry Return
ADAC 17.38 JUN 15.00 QAB RC 0.56 40 14.44 21 15.8%
ADVP 16.75 JUN 12.50 QVD RV 0.38 86 12.12 21 14.8%
MSM 22.06 JUN 17.50 MSM RW 0.50 215 17.00 21 14.7%
BBSW 17.00 JUN 12.50 UUO RV 0.38 4652 12.12 21 14.6%
MATK 18.88 JUN 15.00 KQT RC 0.31 5 14.69 21 11.0%
YRK 25.94 JUN 22.50 YRK RX 0.56 22 21.94 21 10.8%
NGH 21.19 JUN 17.50 NGH RW 0.25 1699 17.25 21 7.2%
Company Descriptions
LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, MR-Monthly Return.
*****
ADAC - ADAC Laboratories $17.38 *** Break-out! ***
ADAC Laboratories is the world market-share leader in nuclear
medicine and radiation therapy planning systems, and a technology
leader in providing clinical workflow solutions, management
information and knowledge systems to healthcare organizations in
North America. ADAC is headquartered in Milpitas, CA, and its
HealthCare Information Systems Division is located in Houston, TX.
Lots of news on ADAC Labs: earnings improvement, new contracts,
new products, and an upgrade back in January. It appears the
improvement in gross margins and tighter control of operating
expenses has helped the company. The stock has climbed steadily
from last year's low, recently moving to a new 52 week high. The
technical picture continues to improve and strengthen even in this
horrid market environment. This position offers favorable risk
versus reward speculation on a bullish issue.
JUN 15.00 QAB RC LB=0.56 OI=40 CB=14.44 DE=21 MR=15.8%
Chart =
/charts/charts.asp?symbol=ADAC
****
ADVP - Advance Paradigm $16.75 *** Own This One! ***
Advance Paradigm is a leading independent provider of health
benefit management services, providing pharmacy benefit
management, disease management and clinical research programs
to two primary customer groups: health plan sponsors and
pharmaceutical manufacturers. ADVP supports a broad range of
health plan sponsors its pharmacy benefit management and
disease management services. They also provide clinical
research services and work closely with pharmaceutical
manufacturers in negotiating lower drug costs for its health
plan sponsor customers. Last week, ADVP said revenues rose to
$564 million, up from $229 million a year ago. Earnings were
slightly ahead of expectations at $0.24 a share, up from $0.15
the previous year. The bullish technical character suggests a
new trend is beginning.
JUN 12.50 QVD RV LB=0.38 OI=86 CB=12.12 DE=21 MR=14.8%
Chart =
/charts/charts.asp?symbol=ADVP
****
BBSW - Broadbase Software $17.00 *** Bottom Fishing! ***
Broadbase Software is a leading provider of customer-focused
analytic and marketing automation applications that analyze
customer data from multiple touch points, and utilize that
information to execute marketing campaigns, improve online
merchandising and content, increase site stickiness and
personalize all customer interactions. Broadbase applications
are designed for rapid time to value and they can be installed
quickly. The company provides e-commerce infrastructure to
customers such as ADP, BEA Systems, Cisco, Fidelity Investments,
Hewlett-Packard, Kodak, LoanCity.com, Mercata.com, The Sharper
Image and United Airlines. Broadbase also has a major global
presence with locations around the world. This unique software
company recently announced more than 30 new global customers, a
number of strategic resale contracts, and they are planning a
significant International expansion.
JUN 12.50 UUO RV LB=0.38 OI=4652 CB=12.12 DE=21 MR=14.6%
Chart =
/charts/charts.asp?symbol=BBSW
****
MATK - Martek Biosciences $18.88 *** Upcoming FDA Approval? ***
Martek Biosciences Corporation is engaged in the development and
commercialization of high value products derived from microalgae.
Martek's products are nutritional oils used as ingredients in
infant formula and foods, and as ingredients in, and encapsulated
for use as, dietary supplements. Martek rallied last week after
a report in Barron's stated that its share value could rise if
the FDA approves its infant formula containing DHA and AA fatty
acids; supplements that could make infant formula superior to
mother's milk. The report also said that Martek could earn $2 to
$3 a share if formula supplemented with DHA becomes popular in
the U.S. Martek has licenses with more than half of all formula
producers, including the two biggest U.S. firms, Mead Johnson and
Abbot Laboratories. The Federal Drug Administration is reviewing
the issue and is expected to rule by fall. Based on the technical
change in character, investors think the outcome will be favorable.
JUN 15.00 KQT RC LB=0.31 OI=5 CB=14.69 DE=21 MR=11.0%
Chart =
/charts/charts.asp?symbol=MATK
****
MSM - Msc Industrial $22.06 *** Strong Sector ***
MSC Industrial Direct is one of the largest direct marketers of
a broad range of industrial products to small and mid-sized
industrial customers throughout the U.S.A.. They distribute a
full line of industrial products: cutting tools, abrasives,
measuring instruments, safety equipment, and similar items
intended to satisfy its customers' maintenance and repair
operations. Msc Industrial has made a new 52-week high after
completing a rounded bottom formation. The January and April
highs should provide near-term technical support above our
suggested cost basis.
JUN 17.50 MSM RW LB=0.50 OI=215 CB=17.00 DE=21 MR=14.7%
Chart =
/charts/charts.asp?symbol=MSM
****
NGH - RJR Nabisco Holdings $21.19 *** Merger Speculation ***
RJR Nabisco Holdings is a company whose subsidiaries are engaged
principally in the manufacture, distribution and sale of cookies,
crackers, and other food products. NGH is organized in three
operating segments: Nabisco Biscuit, the U.S. Foods Group and the
International Food Group, which are segregated by both product
and geographic location. Their businesses in the United States
are comprised of Biscuit and the U.S. Foods Group. Outside the
United States, business is conducted by their International group.
Nabisco's share value has rallied since mogul Carl Icahn raised
his offer for the company to $6.5 billion, an increase of 37% in
the price for the nation's largest maker of cookies and crackers.
That's well above the current value but analysts say the offers
will go higher, based on interest from other companies. Analysts
believe a firm pact may emerge in late June or July. Target shoot
the position at $0.31 or $0.38 for a higher return.
JUN 17.50 NGH RW LB=0.25 OI=1699 CB=17.25 DE=21 MR=7.2%
Chart =
/charts/charts.asp?symbol=NGH
****
YRK - York International $25.94 *** Strong Sector ***
York International is the largest independent supplier of air
conditioning, heating, ventilating, and refrigeration equipment
in the U.S.A. and a leading competitor in the industry worldwide.
They offer standardized systems for private homes, apartments,
and small commercial facilities. They provide customized heating
and refrigeration solutions for airports, hospitals, manufacturing
facilities, and other large sites. York has been in a stage I
base since last October and the current up-trend is gaining
technical strength as it approaches the January high. We favor
a conservative covered write at a strike price below near-term
technical support.
JUN 22.50 YRK RX LB=0.56 OI=22 CB=21.94 DE=21 MR=10.8%
Chart =
/charts/charts.asp?symbol=YRK
************************
SPREADS/STRADDLES/COMBOS
************************
The Market Needs A Rest...
Friday, May 26
The market slumped today as traders moved to the sidelines ahead
of the Memorial Day Holiday. Interest rate worries sent stocks
lower driving the Dow Jones Industrial Average down 24 points to
10,299. The Nasdaq remained relatively unchanged at 3205 and the
S&P 500 Index edged down 3 points to 1378. Trading volume was the
lowest of the year with only 725 million shares exchanged on the
NYSE. Breadth ended positive on the Big Board after advances
moved ahead of declines 1,500 to 1,355 in the final hour of the
session. Volume on the Nasdaq reached 1.07 billion shares with
declines leading advances 2,145 to 1,754. Treasuries posted gains
on a bigger-than-expected drop in April durable goods orders. The
30-year bond rose 23/32 to 102 18/32, with its yield down to 6.05%.
Sunday's new plays (positions/opening prices/strategy):
Campbell Soups CPB AUG30C/JUN30C $1.12 debit calendar
Summit Technology BEAM SEP15C/JUN15C $0.00 debit calendar
Campbell Soups moved in a small range during the morning session
and although the position did not reach our target debit, there
were a number of contracts traded. Based on the time and sales
quote data, it appears that $1.12 was the average price achieved.
Our new position in BEAM was rather untimely. Before the market
opened, Alcon Laboratories, the eye care unit of Nestle (NSRGY),
announced it was reportedly in talks to buy the company. Alcon
makes eye care products such as eye drops, contact lens solutions
and office systems for opthamologists and optometrists. It was
said that Alcon will pay a premium to BEAM's $596 million market
share, all in cash. The position did not trade during the first
few hours of the session and when it opened, the share value was
significantly higher. The reason of course is that Alcon agreed
to BEAM for $892.8 million in cash. Obviously we did not enter
the position.
Portfolio plays:
Today's session was relatively docile but the recent downward
momentum continued amid fears of inflation and higher interest
rates. The market rallied early in the day but failed to secure
those gains as investors moved to sidelines ahead of the long
Holiday weekend. Traders blame the slumping market on fears of
another rate hike at the upcoming FOMC meeting. Many analysts
believe the Federal Open Market Committee will further tighten
its monetary policy to slow the growing U.S. economy. Market
bellwethers pulled industrial stocks lower with General Motors
(GM) and General Electric (GE) leading the way. Dow technology
issues offset some of the losses with Intel (INTC), International
Business Machines (IBM), and Hewlett-Packard edging higher. The
Nasdaq provided little bullish activity but in the broad market,
waste management, food and beverages, and regional banking issues
gained ground while computers, electronic retail, aluminum and
automobile stocks moved lower.
Our portfolio was a mix of small rallies in the bullish issues
with consolidation in the majority of positions. The technology
group was led by Scm Microsystems (SCMM) which rebounded $8 after
a week-long selling spree. This unpredictable stock may become
the Murphy's Law "play of the month" as we opted to initiate a
roll-out strategy last Wednesday. For those of you still in the
position, we hope our early exit guarantees a profitable outcome.
In the oil group, Apache (APA) and Texaco (TX) rallied but Falcon
Drilling (FLC) and Ashland (ASH) slid lower. The current outlook
for Ashland is somewhat negative and with the spread profit at
$0.50, it may be prudent to exit the position. Falcon Drilling
appears to have slightly more upside potential but the issue is
at a key moment. The bullish debit spread position is trading
near break-even and if the price falls through the support level
at $21, an early exit should be considered. Magna International
(MGA) slipped lower in early trading and based on the bearish
technical outlook, we decided to close the position to protect
current profits. The bullish calendar spread yielded a $1.50
profit on $0.38 invested in just under two months. The recent
recovery in Excite@home (ATHM) has run its course and the issue
appears to be struggling to hold the current price range near $17.
Once again, a break below that key technical support would be a
potential early-exit signal.
Questions & comments on spreads/combos to Click here to email Ray Cummins
******************************************************************
- NEW PLAYS -
These positions were discovered using one of our primary scan/sort
techniques; identifying potentially failed rallies on issues
with bullish options activity. In these plays, the premiums for
the (OTM) call options are favorable and the potential for a
successful (technical) recovery is significantly reduced by the
resistance at the sold strike price; a perfect condition for a
bearish credit spread.
******************************************************************
JPM - J.P. Morgan $126.75 *** Gloomy Financials! ***
J.P. Morgan meets the financial needs for business enterprises,
governments and individuals around the world. The company
advises on corporate strategy and structure, raises capital,
makes markets in financial instruments and manages investment
assets. J.P. Morgan's business operations are divided into
activities for clients, which include global finance, investment
banking, equities, foreign exchange, interest rate markets,
credit markets, credit portfolio and asset management and
servicing, and activities for the Company's own account, such as
proprietary investments, equity investments and proprietary
investing and trading.
Financial stocks have weakened in the past month, taking their
cue from the FOMC's recent statement that the "rate-raising"
may continue through the summer. Banks and other financials
typically trade lower in times of rising rates with investors
anticipating that a reduction in the margins between loans and
deposits will hurt profitability. Last week, the group turned
negative again on bearish comments from Wall Street analysts
and new data that showed the U.S. economy growing at a faster-
than-expected rate. Banks also neglected to join in the April
post-rate-hike rally and some strategists are expecting the
group to remain bearish in the near term on the belief that
the tightening cycle will continue.
PLAY (conservative - bearish/credit spread):
BUY CALL JUN-145 JPM-FI OI=3169 A=$0.62
SELL CALL JUN-140 JPM-FH OI=2737 B=$1.06
INITIAL NET CREDIT TARGET=$0.62 ROI(max)=14% B/E=$140.62
Chart =
/charts/charts.asp?symbol=JPM
****
TIN - Temple Inland $49.63 *** Who's Buying Now? ***
Temple-Inland is a holding company with interests in corrugated
packaging, bleached paperboard, building products, timber and
timberlands, and financial services. The Paper Group consists
of the company's corrugated packaging and bleached paperboard
operations. Corrugated packaging includes the manufacturing of
container-board that is converted into corrugated packaging and
point-of-purchase displays. Their bleached paperboard operations
produce various grades and weights of coated/uncoated bleached
paperboard, bleached linerboard and bleached bristols. Temple's
Building Products Group manufactures building products including
lumber, plywood, particleboard, gypsum wallboard and fiberboard.
The company's Financial Services Group consists of savings bank
activities, mortgage banking, real estate development and
insurance brokerage.
Stocks in the paper industry gained some attention last month
after Champion (CHA) received a $6 billion takeover offer from
industry giant International Paper (IP). International Paper
offered to buy Champion for $64 a share, $43 of which would be
in cash and $21 in stock. With IP's bid to buy a major company
in the industry, investors began to speculate on other issues
in the group. Last week, the rally came to an end as Deutsche
Banc Alex. Brown downgraded nine of the 13 stocks that make up
the Forest and Paper Products Index. The call came after some
negative comments on the group from UBS Warburg. The analyst
said evidence is mounting that weak domestic demand and rising
inventory levels are pressuring prices on some key commodities
and he fears the industry is headed for a period of reduced
earnings estimates.
The current technical trend agrees this outlook and based on the
recent resistance at $55, this play offers a new opportunity to
benefit from the current slump in the Paper Industry.
PLAY (speculative - bearish/credit spread):
BUY CALL JUN-60 TIN-FL OI=2000 A=$0.50
SELL CALL JUN-55 TIN-FK OI=68 B=$1.00
INITIAL NET CREDIT TARGET=$0.62 ROI(max)=14% B/E=$55.62
Chart =
/charts/charts.asp?symbol=TIN
****
BHE - Benchmark Electronics $34.25 *** Technicals Only! ***
Benchmark Electronics provides contract electronics manufacturing
and design services to original equipment manufacturers in select
industries including medical devices, communications equipment,
industrial and business computers, testing instrumentation and
industrial controls. The company specializes in manufacturing
high quality, technologically complex printed circuit board
assemblies with computer-automated equipment using surface mount
and pin-through-hole interconnection technologies for customers
requiring low to medium volume production runs. Benchmark also
works with customers from product design and prototype stages
through ongoing production and, in some cases, final assembly of
the customers' products. The company provides manufacturing
services for successive product generations.
This play is based on the current price or trading range of
the underlying issue and the recent technical history or trend.
The probability of profit from this position is also higher
than other plays in the same strategy based on disparities in
option pricing. Current news and market sentiment will have an
effect on this issue. Review the play thoroughly and make your
own decision about the future outcome of the position.
PLAY (conservative - bearish/credit spread):
BUY CALL JUN-45 BHE-FI OI=32 A=$0.38
SELL CALL JUN-40 BHE-FH OI=65 B=$0.81
INITIAL NET CREDIT TARGET=$0.56-$0.62 ROI(max)=14% B/E=$40.62
Chart =
/charts/charts.asp?symbol=BHE
****
AET - Aetna $64.06 *** Covered-Calls and LEAPS ***
Aetna, along with its subsidiaries, is a health benefits company
and an insurance and financial services organization centered
around three core businesses: healthcare, retirement services
and international. Their business operations are conducted in
the following segments: Aetna U.S. Healthcare, Aetna Retirement
Services, Aetna International and Large Case Pensions. Aetna U.S.
Healthcare provides a full spectrum of health products (managed
care and indemnity) and group insurance products (disability and
long-term care) on both an insured and an employer-funded basis.
Aetna Retirement Services offers financial services products.
Aetna International sells primarily life and health insurance and
financial retirement services products in markets outside of the
United States. Large Case Pensions manages retirement products
offered to IRC Section 401 qualified defined benefit and defined
contribution plans.
Aetna has been on the move recently after the stock climbed above
an intermediate technical resistance level. The rally came amid
signs that the company's planned restructuring was moving ahead
smoothly and comments that their financial guidance is on track.
Earlier in the year, Aetna said it will split into two companies,
one for health care and one for financial services, to increase
its core value. Obviously, that bodes well for long-term stock
owners and we are going to take advantage of the recent spike in
implied volatility with a neutral, LEAPS/CC's position.
PLAY (aggressive - neutral/calendar spread):
BUY CALL JAN01-65 AET-AM OI=25 A=$9.75
SELL CALL JAN00-65 AET-FM OI=2284 B=$2.50
INITIAL NET DEBIT TARGET=$7.00 TARGET ROI=50%
The basic premise in a calendar spread is simple; time erodes
the value of the near-term option at a faster rate than it will
the far-term option. It is generally best to establish this
type of spread at least 2 - 3 months before the long option
expires, capitalizing on the ability to sell another option
against the longer-term position. Ideally, the spreader would
like to have the stock finish just below the sold strike when
the near-term option expires. If the short-term options are
in-the-money at expiration, he will have to buy them back to
preserve the long-term position.
Of course, there are potential adjustments after you open the
initial LEAPS/Covered-Call play. You may have to "roll-up" or
"roll-down" if the stock price moves very far away from your
sold option to keep the play profitable. For more information,
read the appropriate chapters in Larry McMillan's "Options as a
Strategic Investment" and Sheldon Natenburg's "Option Volatility
and Pricing", these are two of the bibles of option trading and
they will provide the necessary information on the subject of
calendar spreads and the appropriate entry/exit/adjustment
strategies.
Chart =
/charts/charts.asp?symbol=AET
******************************************************************
- STRADDLES AND STRANGLES -
******************************************************************
MEDI - MedImmune $148.25 *** Consolidation Period ***
MedImmune is a biotechnology company with six products on the
market and a diverse product development portfolio. The company
is focused on using advances in immunology and other biological
sciences to develop important products that address significant
medical needs in areas such as infectious diseases, immune
regulation and oncology. Its products on the market include
Synagis, CytoGam, RespiGam, Ethyol, NeuTrexin and Hexalen.
The majority of Major Drug companies have managed to avoid much
of the suffering in the past few weeks and the Biotechnology
Sector is performing as well as can be expected, considering the
recent market malaise. A Needham & Co. analyst started coverage
of MEDI this month with a "buy" rating, based on a partnership
for the inhaled formulation Synagis and initiation of clinical
studies for MEDI-5-7. But that's not the big news! MedImmune is
planning a three-for-one stock split to be paid in the form of a
200% stock dividend to all shareholders of record at the close of
business on May 18, 2000.
We like the issue for a bullish position but there are not too
many favorable ways to approach the inflated option premiums. In
this case, we have decided to sell premium for credit and use the
earned income to offset any losses on the downside, in the event
we accept assignment of the issue. If the price of the issue
moves through the resistance area near $190 on a pre-split rally,
we will simply buy the stock to cover our sold options.
PLAY (aggressive - neutral/credit strangle):
SELL CALL JUN-190 MEU-FR OI=382 B=$1.12
SELL PUT JUN-110 MEQ-RB OI=638 B=$1.12
INITIAL NET CREDIT TARGET=$2.25-2.38 ROI(max)=12%
UPSIDE B/E=$192.25 DOWNSIDE B/E=$107.75
Chart =
/charts/charts.asp?symbol=MEDI
*****
A less neutral and more bullish type of calendar spread is when
the underlying issue is some distance below the strike price of
the options. This position is speculative with low initial cost
and large potential profits. Two favorable outcomes can occur:
the stock rallies in the short-term and the position is closed
for a profit as time value erosion in the short option produces
a net gain or; the underlying stock consolidates, allowing the
sold option to expire and then eventually rallies above the long
option strike price.
The basic premise in a calendar spread is simple; time erodes
the value of the near-term option at a faster rate than it will
the far-term option.
It is generally best to establish this type of spread at least
2 - 3 months before the long option expires, capitalizing on the
ability to sell another option against the longer-term position.
That is the basic idea in this spread play; selling time value
in the options when they are overpriced (high implied volatility)
and buying it back (if necessary) when they return to intrinsic
value. Ideally, the spreader would like to have the stock finish
just below the sold strike when the near-term option expires. If
the short options are in-the-money at expiration, he will have
to buy them back to preserve the long-term position.
UUI FC 9/16 13/16 55
UUI FW 1/8 3/8 17
GSB GW1 1/16 1 1/4 786
GSB GD 5/16 1/2 1,044
KEY GD 1 11/16 1 15/16 108
KEY FX 5/16 1/2 1,516
EFX FF 3/16 7/16
EFX GF 9/16 13/16 383
TIN FL 5/16 1/2 2,000
TIN FK 1 1 1/4 68
BHE FI 1/8 3/8 32
BHE FH 13/16 1 1/16 65
OIL FU 3/8 9/16 88
OIL FG 1 1 3/16 437
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SEE DISCLAIMER IN SECTION ONE
*****************************

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